Government 
Telephones 


Tames  Mavor 

*J 


GOVERNMENT 
TELEPHONES 

THE  EXPERIENCE  OF 
MANITOBA,  CANADA 


BY 

JAMES  MAYOR,  PH.D. 

Professor  of  Political  Economy  in  the  University  of 

Toronto:  Author  of  "An  Economic  History 

of  Russia,"  etc.,  etc. 


NEW  YORK 

MOFFAT,  YARD  &  COMPANY 
1916 


COPYRIGHT,  1916.  BY 

MOFFAT,  YARD  AND  COMPANY 

NEW  YORK 


All  riehtt  restrvid 


CONTENTS 


PAGE 

INTRODUCTION  .  i 


PREFACE 


CHAPTER 

I    THE  ACQUISITION  OF  THE  BELL  SYSTEM  ...     13 

Early  telephone  development  under  private  enter- 
prise. Political  agitation  for  public  ownership  of  tele- 
phones. Substantial  reduction  in  telephone  rates 
promised  under  public  ownership.  Construction  by  the 
Government  of  a  competitive  telephone  system  begun 
in  1907.  Government  purchase  of  the  extensive  system 
of  the  Bell  Company,  December  30,  1907.  Promises 
of  the  Government  as  to  reduction  of  rates,  commercial 
management,  and  profitable  operation. 

II    THE  GOVERNMENT  SYSTEM  UNDER  THE  FIRST 

COMMISSION 36 

Telephone  management  vested  in  a  Commission  un- 
der the  control  of  the  Government.  Telephone  policies 
determined  by  political  considerations;  Governmental 
interference  in  the  telephone  management.  A  sectional 
increase  in  rates;  telephone  management  dominated  by 
political  influence.  Substantial  profits  from  the  first 
year's  operations  alleged  by  the  Government.  Real 
deficit  in  1908  concealed  by  unsound  accounting 
methods.  A  moderate  rate  reduction  effected  by  the 
Government  for  political  purposes.  Labor  difficulties. 
Deficit  in  1909  concealed  by  the  accounting  methods 
prescribed  by  the  Government.  Construction  policy  of 
the  Government  ineconomical  and  marked  by  political 
abuses.  Financial  result  in  1910  again  an  apparent 
profit  but  a  real  loss.  Fictitious  profits  disappear  in 
1911 ;  an  aggregate  loss  of  over  $300,000.  Govern- 
ment policies  result  in  extravagance,  inefficiency  and 

355440 


CONTENTS 

CHAPTER  PAGE 

discrimination  in  violation  of  promises.  Long  distance 
rates  increased;  proposal  to  revise  exchange  rates 
violently  attacked  by  the  public.  Appointment  of  a 
Royal  Commission,  under  the  control  of  the  Govern- 
ment, to  investigate  the  Telephone  Commission.  Tele- 
phone mismanagement  ascribed  by  the  Royal  Commis- 
sion to  the  Telephone  Commission  instead  of  to  the 
Government.  Resignation  of  the  Telephone  Commis- 
sion. 

III  THE  GOVERNMENT  SYSTEM  REORGANISED    .     .115 

Appointment  of  a  single  Telephone  Commissioner 
followed  by  ostensible,  but  largely  ineffectual,  admin- 
istrative reforms.  Exchange  rates  increased;  private 
telephone  competition  prevented.  Telephone  accounts 
still  defective;  a  real  loss  of  over  $200,000  in  1912. 
Inadequate  provision  against  depreciation;  real  finan- 
cial result  in  1913  again  a  deficit.  Quality  of  service 
unsatisfactory.  More  administrative  reforms,  with 
extension  of  Government  control;  accounts  show  an- 
other deficit  in  1914  and  improper  use  of  telephone 
funds.  The  telephone  management  a  campaign  issue; 
extension  of  telephone  service  less  than  that  in  the 
United  States;  the  passing  of  the  Government.  System 
used  for  political  purposes  by  the  new  Government; 
an  aggregate  loss  of  $1,000,000.  Increasing  deficits 
despite  reports  of  profits;  no  prospect  of  relief  from 
political  abuses. 

IV  CONCLUSIONS 160 

INDEX     .     .     .     ...    ..j    M    >•;    (.i    .     w    .•    .  165 


PREFACE 

Although  there  are  many  difficulties  inherent  in 
Governmental  management  of  industrial  enterprises, 
and  although  in  practically  every  country  these  diffi- 
culties have  emerged  in  a  more  or  less  acute  form, 
any  new  example  of  such  management,  especially  one 
upon  a  considerable  scale,  is  worthy  of  careful  exam- 
ination in  order  to  determine  to  what  degree,  if  at 
all,  the  inherent  difficulties  have  been  overcome 
either  by  the  sagacity  of  the  Government  or  by  the 
coincidence  of  unusually  favorable  conditions.  The 
test  of  practical  experience  is  after  all  a  good  one; 
and  the  study  of  a  living  organism  offers  certain  ad- 
vantages over  the  study  of  an  organism  whose  life 
history  is  closed.  The  disadvantage  is  that  the  liv- 
ing organism  cannot  without  risk  be  cut  open  to  see 
what  is  going  on  inside  and  that  therefore  the  view 
of  it  must  be  an  external  one  aided  by  diagnosis  of 
its  interior  condition  derived  from  the  external  ap- 
pearances. 

Under  the  influence  of  such  reflections,  during  the 
summer  of  the  memorable  year  1914,  I  made  an  in- 
quiry into  the  telephone  system  of  Manitoba  in  or- 
der to  ascertain  the  facts  of  the  case.  The  Provin- 


vi  PREFACE 

cial  Government  had  undertaken  the  ownership  and 
operation  of  the  telephones  in  the  Province  in  1908 ; 
the  system  was  the  largest  under  Government  own- 
ership in  America;  the  Provincial  Government  had 
been  by  no  means  modest,  either  in  promises  or  in 
announcements  of  performances;  political  capital 
had  been  raised  upon  the  credit  of  the  telephones  by 
Cabinet  Ministers  and  by  candidates  at  elections;  the 
alleged  success  of  the  enterprise  had  been  widely 
advertised  in  the  organs  of  the  Government  and  in 
those  of  the  advocates  of  "public  ownership."  On 
the  other  hand,  politicians  of  the  party  opposed  to 
the  Government  and  the  Opposition  press,  while  in 
general  approving  of  the  policy  of  public  ownership 
in  the  abstract,  attacked  the  management  of  the  Gov- 
ernment, sometimes  abusing  the  Government  for  ex- 
travagance and  at  other  times  for  parsimony. 

For  the  reason  that  a  living  organism  was  in- 
volved it  was  not  easy  to  study  the  Government  tele- 
phone system  in  Manitoba  in  actual  operation.  An 
exhaustive  investigation  into  the  contemporary  tech- 
nical and  financial  position  of  the  system  would  nec- 
essarily have  the  character  of  a  post-mortem.  Such 
an  investigation  could  moreover  be  competently  con- 
ducted only  by  an  impartial  tribunal  appointed  by 
extra-Provincial  authority  and  endowed  with  full 
powers  to  call  for  witnesses  and  documents,  to  take 
evidence  upon  oath,  and  to  employ  experts  to  ex- 
amine the  accounts  and  to  appraise  the  plant. 


PREFACE  vii 

My  inquiry  was  necessarily  of  a  much  less  formid- 
able character.  It  was  unavoidable  to  confine  it  al- 
most altogether  to  the  history  of  the  system  in  so  far 
as  this  history  might  be  gathered  from  published 
documents,  from  contemporary  newspapers,  and 
from  conversation  with  those  who  had  had  relations 
with  the  system  or  opportunities  to  know  the  course 
of  events.  The  inquiry  was  greatly  facilitated  by 
the  fact  that  a  considerable  mass  of  privately  col- 
lected authoritative  data  relating  to  the  subject  for- 
tunately came  into  my  possession.  The  following 
pages  are  the  result  of  a  critical  analysis  of  all  the 
material  at  my  disposal.  Much  of  it  was  found  to 
be  inaccurate  or  biased  and  was  therefore  rejected. 
The  narrative  is  scrupulously  documented.  It  pur- 
ports to  set  forth  statements  of  fact  readily  suscepti- 
ble of  confirmation  by  any  one  who  will  take  the 
trouble  to  consult  the  authorities  which  have  been 
given.  The  conclusions  which  are  drawn  from  the 
statements  of  fact  seem  to  be  irresistible,  and  they 
are  stated  with  due  reserve.  The  book  must  there- 
fore be  judged  not  as  an  attack  upon  the  Manitoba 
Government  nor  upon  its  administration  of  the  tele- 
phone system,  but  as  a  critical  narrative  of  historical 
facts  written  from  a  point  of  view  as  impartial  as 
possible. 

It  should  be  noticed  that  since  my  inquiry  was  con- 
cluded, the  Government  which  was  responsible  for 
the  purchase  of  the  telephone  system  and  for  its  ad- 


viii  PREFACE 

ministration  during  the  first  seven  and  a  half  years 
of  Government  ownership  has  ceased  to  exist.  Some 
of  its  members  were  indicted  for  infringement  of  the 
criminal  law;  but  the  disagreement  of  the  jury 
avoided  a  positive  verdict.  The  present  Govern- 
ment has  been  in  existence  only  a  short  time ;  never- 
theless, certain  of  its  acts  have  been  significant  and 
ominous,  and  brief  mention  of  these  acts  has  been 
included  in  the  narrative  upon  the  basis  of  such 
printed  authentic  information  as  has  recently  come  to 
my  notice. 

My  inquiry  included  the  telephone  systems  in  the 
Provinces  of  Alberta  and  Saskatchewan  where,  as  in 
Manitoba,  Government  ownership  of  telephones  was 
adopted  about  a  decade  ago ;  but  the  systems  in  these 
Provinces  are  really  too  small  to  warrant  extended 
consideration  and  I  have  taken  no  steps  toward  pub- 
lishing my  notes  on  them.  However,  it  may  be  said 
that,  on  the  whole,  the  history  —  and  results  —  of 
public  ownership  both  in  Alberta  and  in  Saskatche- 
wan have  been  analogous  to  those  in  Manitoba,  al- 
though of  course  on  a  smaller  scale. 

JAMES  MAVOR. 
Toronto, 
ist  September,  1916. 


INTRODUCTION 

The  invention  of  the  telephone  has  probably  pro- 
duced more  important  social  reactions  than  either 
the  railways  or  the  telegraph,  although  the  telephone 
was  introduced  only  forty  years  since,  while  the  rail- 
way is  nearly  a  century  and  the  telegraph  about 
three-quarters  of  a  century  old.  The  rapidity  of 
the  development  of  the  telephone  and  the  wide  ex- 
tension of  its  use  have  resulted  from  the  application 
of  the  inventive  genius  of  a  large  number  of  persons 
and  from  the  encouragement  of  this  genius  by  private 
enterprise,  especially  in  America. 

In  Europe  the  telephones  are  now  very  generally 
owned  by  the  Governments  of  the  respective  coun- 
tries in  correspondence  with  the  view  of  the  charac- 
ter and  functions  of  the  State  which  has  developed  in 
Central  Europe  during  the  past  seventy-five  years. 
This  view  involves  the  more  or  less  complete  subor- 
dination of  the  individual  to  the  State  and  places 
enormous  industrial  and  financial  power  in  the  hands 
of  the  governing  groups.  This  power  has  been  used 
to  the  full  during  recent  years  to  establish  and  to  con- 
tinue the  political  pre-eminence  of  these  governing 
groups.  The  interests  of  the  public  are  lost  sight  of 


2        ;  INTRODUCTION 

in  the  pursuit  of  the  assumed  interests  of  the  State  — 
a  body  by  no  means  identical  with  the  mass  of  the 
public,  but  to  be  regarded  rather  as  a  body  of  per- 
sons whose  interests  are  frequently  opposed  to  those 
of  the  community  of  persons  who  constitute  the 
nation. 

There  is  no  reason  to  believe  that  the  policy  which 
has  been  adopted  by  the  Central  European  Empires 
and  copied  in  a  less  extensive  degree  by  the  nations 
of  western,  southern  and  northern  Europe,  will  be 
permanent.  There  have  been  many  oscillations  in 
historical  times  between  what  may  be  generally  called 
medieval  legislative  and  administrative  restriction 
and  modern  freedom  of  the  exercise  of  industrial 
functions.  Whatever  may  be  the  tendency  at  a  par- 
ticular moment,  there  is  no  justification  for  nourish- 
ing illusions  upon  the  alleged  advantages  of  restric- 
tion over  freedom,  even  although  liberty  has  its 
drawbacks  when  pushed  to  the  extreme  of  lalsser 
faire. 

The  most  obvious  disadvantage  of  State  collect- 
ivism is  the  degeneration  of  the  administration  into  a 
bureaucracy  of  which  red-tape  becomes  the  symbol. 
Under  the  pressure  of  red-tape,  invention  is  un- 
doubtedly sterilized.  As  a  matter  of  fact,  the  de- 
velopment of  the  telephone  owes  nothing  to  the  State 
in  any  country.  It  has  even  been  impeded  by  legis- 
lation and  by  the  fear  of  the  possibility  of  public 
confiscation.  Under  the  technical  conditions  of  tele- 


INTRODUCTION  3 

phony,  it  is  probable  that  to  no  industry  is  State  man- 
agement less  readily  applicable  than  to  the  telephone 
industry.  The  intricacy  of  its  technique  and  the 
highly  fluid  character  of  its  methods  mark  it  off  de- 
cisively from  certain  industries  whose  technique  has 
become  settled  and  whose  methods  have  come  to  be 
subject  to  routine.  Whether  or  not  industries  of 
the  latter  character  may  be  successfully  administered 
by  the  State  is  open  to  discussion  on  general  and  on 
special  grounds;  but  experience  has  shown  that  the 
methods  of  State  administration  are  in  general  too 
cumbersome  for  their  application  to  rapidly  develop- 
ing industries,  with  the  doubtful  exception  of  those 
which  are  of  a  definitely  military  or  naval  character. 
Even  in  the  latter  case  experience  has  also  shown  the 
immense  advantage  of  the  distribution  of  technical 
skill  in  private  establishments  as  a  reserve  which 
may  in  case  of  need  be  diverted  to  the  service  of  the 
State.  Where,  from  a  mistaken  view  of  the  public 
interest,  the  State  establishes  a  monopoly  in  its  own 
favor,  the  inevitable  result  is  the  suppression  of  in- 
dividual initiative  and  the  absence  of  reserves  of 
technical  skill  and  efficient  labor. 

The  argument  which  at  the  moment  is  frequently 
employed,  that  for  military  purposes  in  time  of  peace 
as  well  as  in  time  of  war  it  is  important  for  the  tele- 
phone to  be  in  the  hands  of  the  Government,  does 
not  apply  because  if  the  telephone  is  in  private  hands 
the  Government  can  in  an  emergency  exercise  the 


4  INTRODUCTION 

right  of  eminent  domain  and  can  commandeer  the 
telephone  service,  even  if  it  were  not  voluntarily 
placed  at  the  disposition  of  the  Government,  al- 
though that  would  undoubtedly  be  done.  Under 
private  operation  of  telephones  the  Government  has 
thus  the  advantage  of  having  at  its  disposal  a  tele- 
phone system  developed  by  private  initiative  with- 
out cost  to  itself  and  much  more  extensive  than  any 
which  would  have  been  at  all  likely  to  have  been 
developed  under  Government  auspices. 

In  democratic  countries  the  people  are  in  general 
severely  censorious  about  Governmental  actions  and 
frequently  even  abusive  of  the  executive  Govern- 
ment; but  an  attitude  of  this  kind  is  rarely  of  an 
intimate  or  effectively  critical  character,  especially 
where  the  actions  in  question  are  connected  with  the 
operation  of  a  complex  industry.  The  minutiae  of 
such  an  industry  are  not  understood  by  the  public  at 
large  and  if  the  State  is  the  sole  employer  of  the 
experts,  the  assistance  of  these  experts  is  not  gen- 
erally available  for  an  examination  of  the  Govern- 
mental operations  because  they  are  professionally 
and  economically  at  the  mercy  of  the  Government. 
Under  the  conditions  of  a  competitive  system  where 
there  is  no  Governmental  or  other  monopoly,  criti- 
cism may  be  continuous  and  effective.  Under  con- 
ditions of  quasi-monopoly,  the  visitatorial  power 
which  is  inherent  in  Governmental  administration 
may  properly  be  applied  by  Government  inspectors 


INTRODUCTION  5 

and  the  public  interest  in  the  widest  and  deepest 
sense  may  be  conserved  by  the  Government,  provided 
that  the  visitatorial  power  is  exercised  in  an  impartial 
manner.  Where,  however,  the  Government  enters 
into  direct  competition  with  private  enterprises,  its 
visitatorial  powers  cannot  be  exercised  disinterest- 
edly and  must  therefore  be  ineffective;  and  where  the 
Government  exercises  a  legal  monopoly,  the  visita- 
torial power  disappears  altogether  and  there  is  neces- 
sarily a  tendency,  not  only  towards  administrative 
stagnation  but  also  towards  laxity,  incompetence, 
and  even  fraudulent  intromission  with  public  funds. 
Thus  a  public  service  which  is  rendered  by  persons 
voluntarily  cooperating  as  in  a  joint  stock  enterprise, 
when  subjected  to  the  possibility  of  Governmental  in- 
spection and  criticism  by  Governmental  agents  hav- 
ing power  to  call  for  the  production  of  all  relevant 
data,  is  more  likely  to  be  conducted  efficiently  than  a 
public. service  rendered  directly  by  Governmental  em- 
ployees who  are  not  exposed  to  effective  criticism  by 
any  constituted  body. 

So  also  financial  considerations  are  decisively 
against  overloading  Governmental  agencies  with  pe- 
cuniary responsibilities.  The  investor  in  Govern- 
ment securities  regards  as  the  prime  element  in  their 
saleability,  not  the  alleged  assets  of  the  Government 
the  value  of  which  he  is  not  competent  to  judge,  nor 
the  alleged  earning  power  of  any  of  the  enterprises 
in  which  the  Government  may  engage,  for  the  effi- 


6  INTRODUCTION 

ciency  of  the  management  of  these  enterprises  is  also 
beyond  his  knowledge;  but  the  investor  regards  ex- 
clusively the  taxing  power  of  the  Government  and 
the  apparent  ability  of  the  people  to  sustain  the  bur- 
den of  the  taxes  which  are  likely  to  be  placed  upon 
them.  In  this  estimate  of  the  solvency  of  a  com- 
munity, the  aggregate  amount  of  the  public  debt, 
State  and  municipal,  in  relation  to  the  numbers  of  the 
people  is  a  prime  factor.  Increase  in  public  indebt- 
edness in  excess  of  the  increase  of  the  numbers  of  the 
it-  • 

people  means,  therefore,  an  increase  in  the  rate 
of  interest  because  the  security  is  proportionately 
diminished.  In  a  country  where  the  chief  employ- 
ment is  agriculture,  the  principal  security  upon  which 
debt  is  created  is  clearly  land;  and  when  the  aggre- 
gate debt  amounts  to  a  high  sum  per  acre  of  land  in 
cultivation,  it  is  time  for  the  investor  in  public  se- 
curities to  consider  the  situation  because  the  taxes 
being  the  first  charge  upon  the  land,  the  amount  of 
these  taxes  determines  all  other  credits,  and  defaults 
in  tax  payments  involve  flight.  If  the  population 
deserts  the  land,  all  other  forms  of  security  in  the 
country  shrivel  into  no  importance.  The  attitude 
of  the  investor  is,  therefore,  perfectly  sound. 

The  experience  of  every  Government  shows  quite 
conclusively  that  Governmental  management  of  en- 
terprises of  an  industrial  character  is  ineconomical. 
The  ineconomical  management  of  such  enterprises 
arises  from  the  following  main  causes : 


INTRODUCTION  7 

i°  The  absence  of  incentive  to  economical  man- 
agement; 2°  the  employment  of  persons  on  political 
rather  than  on  professional  or  technical  grounds,  and 
therefore  the  employment  of  a  number  of  persons 
larger  than  is  necessary;  3°  the  reluctance  with  which 
the  Government  appoints  persons  of  superior  pro- 
fessional qualifications  because  of  the  relatively  high 
salaries  such  employment  involves,  the  employment 
of  the  cheap  official  being  regarded  as  most  easily 
defensible;  4°  the  sale  of  the  service,  whatever  it 
may  be,  at  a  price  determined  also  rather  on  political 
than  on  technical  grounds;  and  5°  the  restriction  or 
the  absence  of  competition. 

The  consequence  of  these  conditions  is  that  the  cost 
to  the  nation  of  any  service  rendered  by  the  Govern- 
ment is  always  greater  than  the  cost  of  the  same  serv- 
ice rendered  by  competent  persons  other  than  those 
in  the  Government  service.  This  consequence  makes 
its  appearance  even  although  the  functionaries  of  the 
Government  practice  the  most  scrupulous  integrity. 
Where  corruption  enters,  the  consequences  are  some- 
times even  disastrous. 

The  demands  of  a  growing  population  for  the  ex- 
tension of  Governmental  services  of  a  strictly  legiti- 
mate character  are  increasing  so  steadily  that  the  tax- 
bills  as  well  as  the  debt  of  the  modern  State  are  sub- 
ject to  constant  expansion.  If  in  addition  to  this 
legitimate  increase  in  the  amounts  taken  from  the 
pockets  of  the  people  and  placed  at  the  disposal  of 


8  INTRODUCTION 

the  Government,  the  increase  of  taxes  and  of  debt 
is  amplified  by  Governmental  adventures  into  ineo 
onomically  conducted  industrial  enterprises,  the  finan- 
cial fabric  of  the  nation  becomes  more  and  more  seri- 
ously imperilled.  The  resources  which  should  be 
available  for  the  promotion  of  increased  production 
are  absorbed  by  the  Government,  a  period  of  indus- 
trial stagnation  supervenes,  while  individual  enter- 
prise and  even  individuality  itself  are  checked.  Un- 
der such  conditions  the  more  energetic  of  the  popula- 
tion migrate  to  some  other  region  where  a  smaller 
proportion  of  their  earnings  is  absorbed  by  the  Gov- 
ernment and  where  they  can  enjoy  a  field  for  their 
powers  less  hampered  by  Governmental  restrictions. 
This  cycle  of  development  has  occurred  in  certain 
European  countries,  where  the  reactions  of  excess  of 
Governmental  control  have  worked  themselves  out. 
The  continent  of  America  has  indeed  been  largely 
peopled  by  emigrants  from  Europe  fleeing  not  from 
ancient  feudal  disabilities  which  have  long  ceased 
to  have  any  tangible  force,  but  from  the  modern 
feudalism  which  subordinates  the  individual  to  the 
assumed  interests  of  the  nation. 

Even  although  a  State  enterprise  were  conducted 
profitably  in  a  pecuniary  sense,  there  would  be  a 
net  public  disadvantage  unless  the  administration 
of  it  was  such  as  to  avoid  the  injurious  effects 
not  primarily  of  a  pecuniary  character.  Too  great 
stress  is  often  laid  upon  the  pecuniary  factor  alike 


INTRODUCTION  9 

by  advocates  and  by  opponents  of  public  ownership. 
The  public  interest  is  affected  not  merely  by  balance 
sheets,  but  even  more  importantly  by  those  influences 
not  distinctly  tangible  but  nevertheless  real  which 
contribute,  along  with  the  pecuniary  factor,  to  deter- 
mine the  movements  of  population,  the  efficiency  of 
industry,  and  the  character  of  the  people. 

The  Manitoba  experience  of  Governmental  man- 
agement of  the  telephones  is  very  instructive  because 
it  affords  an  illustration  of  the  fatal  weakness  of  po- 
litical administration  of  industry.  Although  the 
scale  upon  which  it  has  been  attempted  is  small  com- 
pared to  the  scale  of  a  great  country,  it  is  neverthe- 
less large  in  relation  to  the  total  activities  of  the 
Province.  The  purchase  of  the  telephone  system 
doubled  the  Provincial  obligations  and  the  expendi- 
ture on  the  telephones  has  formed  a  very  material 
proportion  of  the  total  Provincial  expenditure.  In- 
stead of  proceeding  cautiously  and  circumspectly  in 
a  new  adventure  as  the  Government  might  well  have 
done,  the  Government  plunged  at  once  into  a  rela- 
tively vast  extension  of  the  telephone  system  without 
regard  to  the  cost  of  it  and  considering  only  the  tem- 
porary political  advantage  to  the  Government  then 
in  power.  The  public  interest  was  wholly  disre- 
garded. The  members  of  the  Government  who 
spoke  most  confidently  about  the  telephone  system 
knew,  as  they  themselves  admitted  afterwards,  noth- 
ing whatever  about  it.  They  promised  things  that 


io  INTRODUCTION 

in  the  nature  of  the  case  they  could  not  possibly  per- 
form; for  example,  they  promised  to  "cut  the  rates 
in  two."  They  undertook  to  manage  the  telephone 
business  without  the  assistance  of  superior  technical 
advice  and  superintendence,  while  they  hampered 
their  own  officers  in  the  performance  of  their  duty 
and  handicapped  the  enterprise  by  saddling  it  with 
charges  and  overcharges  of  purely  political  origin. 
The  accounts  were  presented  in  a  manner  of  which 
no  competent  chartered  accountant  could  approve 
and  to  which  no  such  person  could  put  his  name  with- 
out qualification.  The  Government  pretended  to 
entrust  the  telephone  business  to  the  Telephone  Com- 
mission and  yet  from  the  beginning  assiduously  used 
the  telephone  business  for  political  ends,  reducing 
the  rates  without  competent  technical  advice  and 
forcing  upon  the  Commission  a  series  of  financial 
arrangements  of  a  highly  questionable  character. 

The  representations  made  by  the  Manitoba  Gov- 
ernment which  acquired  the  system,  and  even  those 
made  by  the  present  administration,  as  to  accruing 
profits  are  absolutely  without  foundation.  Until  the 
Government  writes  off  the  amount  which  its  own 
auditor  regards  as  the  excess  value  of  the  plant,  as 
shown  by  the  books,  over  the  real  construction  cost 
of  the  plant,  it  is  idle  to  talk  of  profits.  Strictly 
speaking,  the  Manitoba  Government  Telephones 
have  up  till  the  present  time  involved  the  Province  in 
a  loss  of  upwards  of  a  million  dollars.  This  sum 


INTRODUCTION  n 

ought  properly  to  be  provided  without  delay  out  of 
the  general  resources  of  the  Province  from  taxation 
and  placed  in  a  fund  in  the  hands  of  trustees  inde- 
pendent of  the  Government  for  the  security  of  the 
holders  of  the  Telephone  debentures  and  stock; 
otherwise  these  securities  must  in  effect  be  depre- 
ciated by  about  ten  per  cent.,  taking  into  ac- 
count the  losses  of  the  past  alone  and  taking  no 
account  of  the  losses  of  the  future.  The  politi- 
cian accustomed  to  vague  rhetorical  generalities  is 
used  to  denouncing  all  serious  criticism;  but  the  in- 
vestor is  not  always  easily  deluded  and  one  day  the 
Province  of  Manitoba  will  find  in  a  restricted  money 
market  and  an  abnormal  rate  of  interest  the  conse- 
quences of  the  failure  of  its  executive  Government 
to  transact  its  business  in  a  businesslike  way. 

Among  the  financial  reactions  of  the  war  must  un- 
doubtedly be  the  increase  of  the  public  debt  of  Eu- 
rope, the  great  increase  of  the  fund  holding  classes, 
and  the  urgent  necessity  for  State  economy.  This 
economy  can  only  be  effected  if  the  State  relinquishes 
all  but  its  necessary  and  obvious  functions  and  re- 
frains from  increasing  its  total  obligations.  Only  by 
such  means  can  normal  social  conditions  be  re-estab- 
lished. Unless  on  the  American  continent  a  similar 
restrictive  policy  as  regards  State  action  be  adopted, 
America  will  find  itself  burdened  by  overwhelming 
public  obligations  with  all  the  social  reactions  to 
which  these  obligations  give  rise. 


12  INTRODUCTION 

The  entire  history  of  the  Government  telephone 
enterprise  in  Manitoba  affords  evidence  of  the  most 
positive  character  against  Government  ownership. 
Practically  all  of  the  defects  which  have  emerged 
elsewhere  in  the  management  of  industries  by  State 
officials  have  made  their  appearance  in  the  case  of 
the  Manitoba  Telephones.  The  management  has 
been  ineconomical,  the  enterprise  has  been  handi- 
capped by  political  intrigue,  the  finances  mingled  as 
they  have  been  with  the  general  finances  of  the  Prov- 
ince have  been  unsoundly  administered  from  the  be- 
ginning, and  the  obligations  of  the  public  have  been 
enormously  increased  without  adequate  compensa- 
tory advantages. 

It  is  possible  that  only  by  repeated  and  costly 
failures  such  as  the  Manitoba  Government  Tele- 
phones, will  the  public  realize  that  the  proper  func- 
tion of  Government  is  not  the  conduct  of  industries 
but  the  impartial  inspection  of  them  under  intelli- 
gent laws  adapted  to  the  character  and  conditions  of 
the  community  and  the  country. 


THE  ACQUISITION  OF  THE  BELL 
SYSTEM 

EARLY  TELEPHONE   DEVELOPMENT   UNDER 
PRIVATE    ENTERPRISE 

PUBLIC  telephone  service  in  the  Province  of  Man- 
itoba was  first  given  in  1880  by  a  private  individual 
who  opened  a  telephone  exchange  in  Winnipeg  and 
charged  an  annual  flat  rate  of  $60  per  instrument. 
In  1 88 1,  however,  this  exchange  was  purchased  by 
the  Bell  Telephone  Company  of  Canada,  which,  in 
1882,  established  exchanges  in  Brandon  and  Portage 
la  Prairie.1  The  Bell  Telephone  Company  began 
its  service  at  a  time  when  there  were  only  some 
60,000  people  in  the  entire  Province,  when  the  popu- 
lation of  Winnipeg  was  only  8,000,  and  when  Bran- 
don and  Portage  la  Prairie  were  only  villages.2  As 
early  as  1884,  there  were  340  subscribers  in  Winni- 
peg,3 a  large  number  in  proportion  to  the  popula- 
tion at  that  time.  Credit,  therefore,  is  justly  due 
the  Bell  Company  for  assuming  the  burdens  and  the 
risks  of  a  pioneer,  for  anticipating  the  needs  of  the 

1  The   Winnipeg  Telegram,  January  16,   1908. 

2  Cf.  Fifth  Census  of  Canada,  1911,  vol.  i,  pp.  522,  554-555. 

3  The  Winnipeg  Telegram,  January  16,  1908. 

13 


i4        GOVERNMENT  TELEPHONES 

public,  and  for  developing  a  substantial  business  to 
serve  the  public. 

Moreover,  the  successful  development  of  the  busi- 
ness was  not  a  matter  of  smooth  sailing;  the  eco- 
nomic seas  in  those  days  were  extremely  turbulent 
and  often  treacherous.  Although  a  period  of  boom 
and  prosperity  accompanied  the  completion  of  the 
extension  of  the  Canadian  Pacific  Railway  to  the 
Pacific  Coast  in  1886-87,  yet  the  telephone  industry 
at  that  time  was  too  young  to  participate  in  the  gen- 
eral expansion.  Somewhat  later,  the  growth  of  the 
business  was  retarded  by  the  local  depression  which, 
beginning  in  1888-89,  continued  for  several  years, 

—  a  depression  which  had  as  one  of  its  causes  a  de- 
crease in  immigration.     Furthermore,  when  a  vig- 
orous immigration  movement  again  set  in  —  in  1895 

—  the  nature  of  the  immigration  was  such  that  little 
impetus  was  given  to  telephone  development,   for 
during  the  period  1895-1900  the  immigrants  were 
predominantly   of   the   peasant   class   with   slender 
knowledge  of  the  English  language,  self-contained 
habits,  and  small  purchasing  power.     Thus  it  is  ob- 
vious that  up  to  1900  the  telephone  business  could 
not  grow  otherwise  than  slowly.     Nevertheless,  it 
is  found  that  in  1900  the  Bell  Telephone  Company 
served  more  subscribers,  in  proportion  to  population, 
in  each  of  the  towns  of  Winnipeg,   Brandon  and 
Portage  la  Prairie  4  than  are  served  to-day  in  the 

*Cf.  The  Winnipeg  Telegram,  January  16,  1908. 


ACQUISITION  OF  BELL  SYSTEM      15 

Government-developed  systems  in  Rome,  Paris  or 
Vienna.  It  was  not  until  after  1900  that  a  rapid 
expansion  of  the  service  in  Manitoba  became  possi- 
ble. Between  1900  and  1908  the  service  did  expand 
rapidly  and  the  Bell  Company  anticipated  and  pre- 
pared for  still  further  expansion.5 

POLITICAL  AGITATION   FOR   PUBLIC   OWNERSHIP 
OF   TELEPHONES 

In  1898  there  arose,  chiefly  in  the  sparsely  settled 
"  rural  municipalities,"  6  a  mild  sentiment  in  favor 
of  the  installation  and  operation  of  telephone  ex- 
changes by  municipal  authorities.  The  first  munici- 
pality to  take  up  the  matter  actively  was  Neepawa, 
which  had  slightly  more  than  i^ooo  inhabitants.  It 
was  found,  however,  that  the  Municipal  Act  of  the 
Province  did  not  endow  municipalities  with  power  to 
establish  commercial  undertakings.  Consequently, 
despite  the  fact  that  as  a  whole  the  municipalities 
were  not  anxious  to  embark  in  a  venture  involving 
the  provision  and  risk  of  capital,  to  meet  the  individ- 
ual case  of  Neepawa  and  to  provide  for  a  few  sim- 
ilar cases,  in  1899  the  Provincial  Legislature  passed 
an  Act  permitting  municipal  ownership  and  opera- 
tion of  local  exchanges.7 

5  Cf.  pp.  26-28,  infra. 

6  In  Manitoba   "  rural   municipalities "   comprise   rural  territory 
exclusively.    They    are    somewhat    analogous    to   rural    counties    in 
Eastern  Canada  and  in  the  United  States. 

7  Statutes  of  Manitoba,  62-63  Vic.,  1899,  cap.  25.    Cf.  also  The 
Winnipeg  Telegram,  February  4,  1908. 


1 6        GOVERNMENT  TELEPHONES 

Since  the  municipal  exchanges  established  under 
this  Act  were  not  entitled  to  connect  with  the  long 
distance  lines  of  the  Bell  Telephone  Company,  the 
Manitoba  Government  then  began  to  consider, 
though  in  a  rather  vague  and  abstract  manner,  the 
expediency  of  constructing  and  operating  long  dis- 
tance lines.  No  tangible  action  was  taken  until 
1905,  when,  on  January  26th,  the  Select  Standing 
Committee  on  Private  Bills  of  the  Provincial  Legis- 
lature, in  a  report  rejecting  the  application  of  two 
embryo  telephone  companies 8  for  charters  of  in- 
corporation, recommended  that  during  the  legisla- 
tive recess  the  Provincial  Government  should  in- 
quire into  the  whole  subject  of  telephone  service 
with  a  view  to  initiating  public  ownership  and  ope- 
ration.9 The  Government  accepted  the  responsibil- 
ity for  this  recommendation  and  promised  a  thorough 
investigation.10  To  use  the  Premier's  own  word, 
this  investigation  took  the  form  of  a  "  quiet  "  inquiry 
on  the  part  of  himself  and  the  Minister  of  Public 
Works.11  It  is  worthy  of  note,  however,  that  the 
Government  at  about  the  same  time  requested  the 
Dominion  Government  to  amend  the  charter  of  the 
Bell  Telephone  Company  so  as  to  empower  the 

8  The  Independent  Telephone  Company  of  Canada  and  the  North- 
west Telephone  Company. 

9  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session  1904-5, 

P-  73- 

10  The  Winnipeg  Telegram,  January  27,  1905. 

11  The  Manitoba  Free  Press,  Winnipeg,  November  24,  1905. 


ACQUISITION  OF  BELL  SYSTEM      17 

Provincial  Government  to  expropriate  the  Company's 
property  in  Manitoba.12  As  the  granting  of  any 
such  request  would  obviously  have  seriously  impaired 
the  value  of  all  charters  whatsoever,  the  request  was 
naturally  refused.13 

As  a  result  of  the  u  quiet "  inquiry  of  the  Premier 
and  the  Minister  of  Public  Works,  the  Government 
resolved  to  commit  itself  to  a  specific  policy  of  pub- 
lic ownership  of  telephones.  The  first  definite  an- 
nouncement of  this  policy  was  made  in  a  speech  by 
the  Premier  on  November  23,  1905.  In  this  speech 
the  Premier  stated : 

;'  The  government  is  now  prepared  to  recommend 
to  the  (Provincial)  legislature  the  establishment  of 
a  telephone  system  in  the  province  of  Manitoba  to 
be  owned  and  controlled  by  the  municipalities  and  the 
government  jointly.  .  .  . 

'  We  have  reached  this  conclusion  from  the  fact 
that  the  telephone  is,  and  must  be,  necessarily  one  of 
the  natural  monopolies,  and  yet  is  one  of  the  most 
desirable  and  necessary  facilities  for  the  despatch  of 
business  and  for  the  convenience  and  pleasure  of  the 
people.  Therefore,  the  price  of  telephones  should 
be  made  so  low  that  laboring  men  and  artisans  can 
have  the  convenience  and  advantage  of  the  telephone, 
as  well  as  the  merchant,  the  professional  man  and 

12  Cf.  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session 
1906,  pp.  97-98. 

13  Cf.  The  Ottawa  Free  Press,  April  26,  1906;   The  Citizen,  Ot- 
tawa, April  28,  1906;  The  Herald,  Montreal,  September  15,  1906. 


1 8         GOVERNMENT  TELEPHONES 

the  gentleman  of  wealth  and  leisure,  and  it  is  our  in- 
tention to  recommend  to  parliament  (i.  e.,  the  Pro- 
vincial Legislature)  a  proposition  of  this  kind  with  a 
view  of  giving  a  telephone  system  to  all  classes  at 
cost."  14 

This  announcement  of  the  telephone  policy 
adopted  by  the  Government  is  highly  significant  in 
two  respects.  In  the  first  place,  the  program  con- 
templated by  the  Government  provided  that  the  local 
(exchange)  service  should  be  operated  by  the 
municipalities  and  that  only  the  long  distance  lines 
should  be  controlled  by  the  Provincial  Government. 
Secondly,  and  more  important  still,  is  the  fact  that 
the  only  reason  advanced  for  the  adoption  of  the 
new  policy  was  that  rates  could  be  considerably  re- 
duced under  public  ownership)  since  service  would  be 
given  at  cost.  Absolutely  no  objection  was  taken  to 
the  character  of  the  service  furnished  by  the  Bell 
Telephone  Company.  The  public  press,  even  while 
supporting  the  doctrine  of  public  ownership,  admit- 
ted that  the  Bell  service  was  "  efficient  and  satisfac- 
tory." 15  Throughout  the  politically-conducted  agi- 
tation for  public  ownership  of  telephones,  the  dis- 
cussion centered  around  the  question  of  rates;  all 
later  references  by  the  politicians  to  the  quality  of 
the  service  were  purely  incidental  and  secondary. 

Although  the  Government  had  thus  already  com- 

14  The  Manitoba  Free  Press,  Winnipeg,  November  24,  1905. 

15  The  Manitoba  Free  Press,  Winnipeg,  November  25,  1905. 


ACQUISITION  OF  BELL  SYSTEM      19 

mitted  itself  to  a  policy  of  public  ownership,  never- 
theless in  its  session  of  1906  (January  29,  1906) 
the  Provincial  Legislature,  on  the  motion  of  the 
Government,  appointed  a  committee  to  inquire  into 
the  telephone  question.16  The  chairman  of  this 
committee  was  the  Attorney-General  of  the  Province. 
[The  committee  took  evidence  in  Manitoba  and  in- 
spected the  independent  telephone  systems  in  several 
United  States  cities  and,  on  February  27,  1906, 
made  its  report,  which  consisted  of  a  series  of  reso- 
lutions to  the  effect  that 

(a)  The  telephone  should  be  owned  and  oper- 
ated as  a  Government  and  municipal  undertaking; 

(b)  The  existing  rates  in  Manitoba  were  exor- 
bitant and  could  be  considerably  reduced; 

(c)  The  Government  should  build  the  long  dis- 
tance lines  and  the  municipalities  should  supply  the 
local  systems.17 

On  February  28,  1906,  the  Government  brought 
before  the  Legislature  a  Bill  based  on  these  resolu- 
tions.18 In  a  lengthy  speech  introducing  the  Bill,  the 
Attorney-General  contended  that  the  Bell  Company's 
"  theory  "  that  unit  costs  increased  with  the  number 
of  telephones  in  use,  was  "  fallacious,"  and  declared: 
"  I  am  satisfied  that  the  present  rates  in  Canada 
could  be  cut  in  two  and  still  leave  a  very  satisfactory 

16  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session  1906, 
P.  35- 

17  Ibid.,  pp.  88-90. 

18  Ibid.,  p.  94. 


20        GOVERNMENT  TELEPHONES 

profit."  19  The  Bill  passed  the  Legislature,  and  be- 
came law  on  March  16;  20  but  the  Government  were 
content  with  having  secured  what  they  regarded  as 
statutory  sanction  for  whatever  course  they  might 
eventually  decide  to  pursue,  and  they  took  no  imme- 
diate action  toward  carrying  out  their  policy. 

The  political  situation  in  Manitoba  in  1906  was 
such  that,  in  view  of  the  approaching  elections,  both 
the  party  in  power  and  the  Opposition  were  desirous 
of  bringing  forward  some  project  which  might 
be  popular  without  being  politically  dangerous. 
Such  questions  as  the  question  of  compulsory  educa- 
tion were  considered  too  complicated  and  too  thorny 
to  be  injected  into  the  political  arena.  The  question 
of  public  ownership  of  telephones,  on  the  other  hand, 
was  assumed  to  be  both  a  simple  one  and  one  which 
would  be  immediately  popular,  as  telephone  service 
could  readily  be  offered  to  everybody  at  cost.  Both 
parties,  therefore,  sought  to  advance  their  political 
fortunes  by  advocating  public  ownership :  the  propo- 
sition of  the  party  in  power  was  the  combined  Gov- 
ernment and  municipal  system  already  described, 
whereas  the  Opposition  —  as  a  plank  in  its  politi- 
cal platform  —  urged  that  both  local  and  long  dis- 
tance service  be  operated  by  the  Government.21 

19  Resolutions   and    Memorials   of  the  Legislative  Assembly  of 
Manitoba  respecting  Public  Telephones.    Winnipeg,  1906. 

20  Statutes  of  Manitoba,  5-6  Edw.  VII,  1906,  cap.  89. 

21  Cf.  the  Manitoba  Free  Press,  Winnipeg,  February  20,  1907. 


ACQUISITION  OF  BELL  SYSTEM      21 

SUBSTANTIAL   REDUCTION   IN   TELEPHONE   RATES 
PROMISED    UNDER   PUBLIC   OWNERSHIP 

Although  the  members  of  the  Government  knew 
nothing  about  the  telephone  business  (a  fact  which 
they  admitted  afterwards22),  nevertheless  through- 
out the  campaigns  which  preceded  the  municipal  elec- 
tion of  December,  1906,  and  the  general  election  of 
1907  they  continued  to  make  high-sounding  and  reck- 
less promises  regarding  the  rate  reductions  which 
could  be  effected  under  their  proposed  policy.  The 
chief  spokesmen  of  the  Government  were  the 
Premier  and  the  Attorney-General.  On  September 
5,  1906,  the  latter  publicly  declared  that  "  the  Gov- 
ernment will  be  able  to  accomplish  a  result  that  will 
cut  the  cost  of  the  telephone  in  two."  23  In  an  in- 
terview published  on  December  10,  the  same  official 
said :  "  In  the  country  the  reduction  will  be  one-half 
the  existing  rates."  24  On  the  same  day  the  Premier 
said:  "  It  is  simply  a  matter  of  those  who  use  tele- 
phones paying  for  them,  and  also,  only  to  pay  half 
what  the  Bell  people  now  charge."  25  Three  or  four 
days  later  the  Premier  said:  u  We  will  more  than 
cut  the  Bell  figure  in  two";26  and,  speaking  in 
Neepawa  on  December  aoth,  he  said  that  by  one 

22  Cf.  p.  96,  infra. 

23  Speech  before  the  Canadian  Independent  Telephone  Associa- 
tion, September  5,  1906. 

•*  The  Winnipeg  Telegram,  December  10,  1906. 

25  The  Winnipeg  Telegram,  December  u,  1906. 

26  The  Winnipeg  Telegram,  December  15,  1906. 


22        GOVERNMENT  TELEPHONES 

year  from  that  time  "  they  would  be  able  to  speak 
over  a  Government-owned  long  distance  line  from 
Neepawa  to  Winnipeg  at  less  than  half  what  is 
charged  by  the  Bell  Telephone  Company  at  the  pres- 
ent time." 27  These  glib  promises  are  typical  of 
many  others  which  the  Government  asked  the  voters 
of  the  Province  to  believe. 

Some  months  after  the  Government  had  openly 
committed  itself  to  a  policy  of  public  ownership  and 
after  promises  to  cut  the  Bell  rates  in  two  had  al- 
ready been  made,  the  Government  perceived  that 
it  would  be  advisable  to  give  the  case  the  appear- 
ance of  being  founded  on  a  substantial  and  scien- 
tific basis.  Consequently,  on  August  21,  1906,  it 
called  to  its  aid  a  telephone  expert  who  was  known 
to  agree  with  the  Government's  contention  that  rates 
could  be  greatly  reduced.  As  a  matter  of  fact,  how- 
ever, this  expert  was  secured  primarily  to  direct  "  a 
campaign  of  education  along  telephone  lines, "  28  that 
is,  he  was  to  be  the  publicity  manager  for  the  Gov- 
ernment's proposal.  In  that  capacity  the  expert  im- 
mediately plunged  into  the  thick  of  the  political  cam- 
paign, making  speeches  throughout  the  Province  in 
which  he  addressed  himself  especially  to  the  farmer. 
For  example,  at  Brandon,  on  October  29,  1906,  he 
said:  "  In  regard  to  the  price  at  which  a  telephone 

27  The  Winnipeg  Telegram,  December  21,  1906. 

28  Letter  of  Attorney-General  requesting  the  services  of  the  ex- 
pert; quoted  by  the  expert  in  a  speech  at  Brandon,  Oct.  29,  1906,  re- 
ported in  the  Manitoba  Free  Press,  Winnipeg,  Oct.  30,  1906. 


ACQUISITION  OF  BELL  SYSTEM      23 

service  can  be  provided  by  the  Government,  I  might 
say  that  it  is  absolutely  certain  that  the  majority  of 
your  farmers  can  obtain  rural  service  at  $12  a  year, 
and  that  the  residents  of  every  municipality  can  ob- 
tain a  telephone  at  the  same  rate."  29  Again,  at 
Birtle,  on  October  3ist,  he  said:  'We  are  abso- 
lutely satisfied  that  with  few  exceptions  every  farmer 
in  this  Province  can  be  supplied  with  telephone  serv- 
ice at  the  rate  of  $1.00  per  month.  I  know  the  Bell 
Telephone  Company  will  take  exception  to  that."  30 
As  a  climax  to  the  campaign  preceding  the  municipal 
elections  the  Government  issued  and  widely  circulated 
a  pamphlet  by  this  expert.81  This  pamphlet  was 
primarily  designed  to  influence  the  voters  in  the  rural 
districts  and  in  it  were  reiterated  the  statements  that 
a  rural  telephone  service  could  be  furnished  for  $1.00 
a  month.32 

CONSTRUCTION    BY    THE    GOVERNMENT    OF    A    COM- 
PETITIVE  TELEPHONE    SYSTEM   BEGUN    IN    1907 

In  order  to  ascertain  the  measure  of  popular  sup- 
port which  would  be  accorded  an  immediate  execu- 

29  The  Manitoba  Free  Press,  Winnipeg,  October  30,  1906. 

30  The  Manitoba  Free  Press,  Winnipeg,  November  3,  1906. 

31  The  Manitoba   Government  and  Public  Ownership   of   Tele- 
phones, Winnipeg,  1906. 

32  Although   the    Government   later    endeavored    to   throw   upon 
their  expert  the  responsibility  for  their  failure  to  fulfill  their  prom- 
ises, it  should  be  observed  that  the  Government  had  entered  upon 
their  career  of  extravagant  promise  long  before  the  advent  of  the 
expert,  whose  views,  also,  were  known  to  the  Government  before 
his  services  were  engaged. 


24        GOVERNMENT  TELEPHONES 

tion  of  their  scheme  of  joint  Government  and  mu- 
nicipal ownership,  the  Government  had  arranged 
that  the  following  question  should  be  submitted  to 
the  voters  in  each  municipality  at  the  municipal  elec- 
tions in  December,  1906:  Shall  this  municipality 
own  and  operate  its  own  telephones  ?  The  vote  pur- 
ported to  be  a  test  vote  pure  and  simple :  an  answer 
in  the  negative  would  mean  that  the  municipality 
would  refuse  to  construct  a  local  system  in  coopera- 
tion with  the  Government;  an  answer  in  the  affirma- 
tive would  signify  merely  that  the  Municipal  Coun- 
cil, at  its  own  discretion,  could  take  steps  to  install  a 
local  system  in  pursuance  of  the  Government's  gen- 
eral scheme.33  In  spite  of  the  fact  that  the  promises 
of  the  Government  on  the  eve  of  the  election  were 
unusually  reckless,  and  although  the  aggregate  popu- 
lar vote  favored  the  affirmative,  a  majority  of  the 
municipalities  of  the  Province  declined  to  cooperate 
with  the  Government.34  The  Government,  however, 
obstinately  refused  to  accept  the  result  of  the  vote 
es  a  rejection  of  its  policy;  on  the  contrary,  it  was 
actually  interpreted  not  only  as  an  endorsement  of 
the  plan,  but  even  as  a  direct  mandate  from  the 
people  to  carry  out  the  program  of  joint  Govern- 
ment and  municipal  ownership.  The  Government 
therefore  began  to  urge  the  installation  of  exchanges 

33  Statutes  of  Manitoba,  5-6  Edw.  VII,  1906,  cap.  90.    Cf.  the 
Manitoba  Free  Press,  Winnipeg,  September  29,  1906. 

34  The  Manitoba  Free  Press,  February  12,  1907. 


ACQUISITION  OF  BELL  SYSTEM      25 

by  municipal  authorities,  and  it  prepared  to  begin 
the  construction  of  some  long  distance  lines,  relying 
upon  the  power  conferred  by  the  Act  of  March  16, 
1906. 

The  general  elections  were  held  in  1907  and  the 
Government  was  returned  to  office.  Thereupon  the 
Government  immediately  announced  that  its  pro- 
posed telephone  policy  was  vindicated  and  that  it 
was  supported  by  public  opinion.35  At  the  same 
time  it  found  itself  in  a  position  to  take  effective 
action,  for  the  financial  position  of  the  Province  had 
been  considerably  improved  between  1900  and 
I9O7.36  It  was  soon  learned,  however,  that  the 
vote  of  the  municipal  elections  was  not  meaningless 
and  that  the  municipalities  would  not  install  local  ex- 
changes as  they  were  expected  to  do.  Even  the  mu- 
nicipality of  Winnipeg,  where  for  several  years  there 
had  been  an  intermittent  agitation  for  a  local  mu- 
nicipal system,  refused  to  submit  to  the  Government's 
proposition.37  The  Government,  therefore,  was 
confronted  by  a  dilemma :  either  to  abandon  the  pro- 
posed scheme  altogether  or  to  embark  upon  a  Gov- 
ernment-owned system  of  local  exchanges  as  well  as 
of  long  distance  lines,  which  was  exactly  the  policy 

35  Cf.  Letter  of  the  Premier  to  the  President  of  the  Bell  Telephone 
Company,    dated    Winnipeg,    March    n,    1907.    Sessional   Papers. 
Legislative  Assembly  of  Manitoba.    Session  1908,  p.  356. 

36  Cf.  Public  Accounts  of  the  Province  of  Manitoba  for  the  re- 
spective years.     These  Accounts  are  printed  as  Sessional  Paper  No. 
i  in  the  Sessional  Papers  of  each  year. 

37  The  Manitoba  Free  Press,  Winnipeg,  April  4,  1907. 


26         GOVERNMENT  TELEPHONES 

advocated  by  the  Opposition.  The  Government 
chose  the  latter  course  as  the  lesser  of  the  two  evils 
and  inaugurated  the  new  program  by  issuing  Pro- 
vincial bonds  to  the  amount  of  one  million  dollars, 
with  the  proceeds  of  which  the  construction  was 
begun  in  September,  1907,  of  a  telephone  exchange 
in  Winnipeg  in  opposition  to  the  local  system  of  the 
Bell  Company.38 

GOVERNMENT   PURCHASE   OF  THE   EXTENSIVE   SYS- 
TEM  OF  THE   BELL   COMPANY,   DECEM- 
BER  30,    1907 

It  is  necessary  to  pause  an  instant  at  this  point  to 
direct  attention  again  to  the  important  fact  that  dur- 
ing 1906  and  1907  the  Bell  Telephone  Company 
vastly  improved  and  increased  its  plant  and  extended 
its  service.  As  the  Opposition  seems  to  have  over- 
looked this  significant  fact  in  their  later  criticisms, 
the  following  statement  has  been  taken  from  the 
columns  of  the  leading  Opposition  newspaper  of  the 
Province  : 

"On  February  21,  1906,  Lewis  B.  McFarlane, 
general  manager  of  the  Bell  Telephone  Company  of 
Canada,  .  .  .  stated  that  the  capital  investment  of 
the  company  in  Manitoba  (on  December  31,  1905) 
was  $1,360,787.  .  .  . 

"  In  the  year  1906  the  Bell  spent  approximately 

88  The  Manitoba  Free  Press,  Winnipeg,  September  6,  1907. 


ACQUISITION  OF  BELL  SYSTEM      27 

$1,000,000  in  Manitoba  in  various  works,  putting  in 
new  switchboards,  new  conduit  work  and  long  dis- 
tance wiring.  During  the  last  year  a  new  exchange 
building  has  been  erected  in  Fort  Rouge  at  a  cost  of 
$40,000,  and  a  great  deal  of  the  underground  and 
cable  work  has  been  done  preparatory  to  opening 
this  exchange.  Then  there  has  been  a  large  addition 
to  the  Winnipeg  switchboard.  A  modern  central 
energy,  multiple  switchboard  has  been  installed  in 
Brandon,  and  the  whole  work  in  the  city  has  been  re- 
constructed. .  .  . 

"  In  1905  there  were  6,224  subscribers  and  892 
miles  of  long  distance  and  rural  lines.  To-day  there 
are  more  than  14,000  subscribers  in  the  province  and 
more  than  2,500  miles  of  pole  lines."  39 

In  other  words,  this  Opposition  statement  shows 
that  during  one  year  (1906)  the  plant  investment  of 
the  Bell  Company  had  almost  been  doubled,  while 
the  number  of  subscribers  was  more  than  doubled 
during  the  two  years  1906  and  1907.  Moreover,  in 
a  speech  before  the  Legislature  on  February  13, 
I9o8,40  the  Premier  stated  that  in  1907  over  $700,- 
ooo  was  expended  on  the  Bell  system,  an  amount 
which,  although  less  than  the  expenditure  in  1906, 
was  still  over  one-half  as  great  as  the  entire  invest- 
ment up  till  December  31,  1905.  In  view  of  this  re- 

39  The  Manitoba  Free  Press,  Winnipeg,  January  i,  1908. 

40  The  Winnipeg  Telegram,  February  14,  1908. 


28        GOVERNMENT  TELEPHONES 

markable  growth,  the  Bell  Telephone  Company  cer- 
tainly seems  adequately  to  have  met  the  real  demands 
of  a  period  of  prosperity  and  expansion. 

The  Government  realized  that  to  compete  with  the 
Bell  would  be  an  extremely  hazardous  venture ;  and 
it  considered  that  it  would  be  much  more  economical 
and  advantageous  to  buy  a  ready-made  system  than 
to  go  through  the  slow  and  laborious  process  of  build- 
ing up  a  business  of  its  own.  The  effort  to  obtain 
authorization  to  expropriate  the  property  of  the  Bell 
Company  having  proved  futile,41  on  December  12, 
1907,  the  Government  asked  Mr.  Sise,  President  of 
the  Bell  Company,  to  come  to  Winnipeg  in  order  to 
discuss  the  project  of  a  purchase  of  the  Bell  system 
in  Manitoba.  Mr.  Sise  responded,  but  set  a  price 
of  $4,000,000  on  the  Bell  property,  stating  that  he 
did  not  anticipate  that  the  Bell  would  suffer  by  the 
introduction  of  the  Government-owned  system  and 
that  he  did  not  want  to  sell.  After  negotiations  an 
agreement  was,  however,  effected,  and  on  December 
30,  1907,  the  Bell  property  and  business  in  Mani- 
toba was  purchased  by  the  Government  for  $3,300,- 
ooo  —  since  there  were  14,042  Bell  telephones  at 
the  date  of  transfer,  a  price  equivalent  to  $235  per 
telephone  —  a  further  sum  of  $100,000  being  paid 
for  supplies.  The  Government  was  to  assume 
charge  of  the  plant  on  January  15,  1908.  To  meet 

41  Cf.  pp.  16-17,  supra. 


ACQUISITION  OF  BELL  SYSTEM      29 

the  purchase  price  the  Government  issued  $3,500,- 
ooo  of  4%  Provincial  bonds,  $100,000  of  these 
bonds  being  held  in  reserve  by  the  Treasury  Depart- 
ment. Although  the  bonds  could  not  have  sold  at 
that  time  for  more  than  92  or  93,  the  Bell  Telephone 
Company  accepted  them  in  payment  at  par  value.42 

The  Opposition  complained  that  the  purchase  was 
rushed  through  within  two  days  before  the  opening 
of  the  legislative  session;  but  the  Government  cited 
the  Act  of  March  16,  1906,  as  sufficient  authority 
for  their  action  and  they  never  submitted  the  specific 
transaction  to  the  representatives  of  the  people  for 
ratification.  The  Opposition  also  contended  that  the 
Bell  plant  was  out-of-date  and  criticized  the  price 
paid  by  the  Government  as  excessive.  The  main 
points  of  the  Government's  answer  to  these  criticisms 
were  as  follows.  The  Government  pointed  out : 

(a)  That  the  Chief  Engineer  of  the  Provincial 
Department  of  Railways,  Telephones  and  Tele- 
graphs had  reported  ( i )  that  the  construction  of  the 
Bell  plant  "  has  been  well  done,  and  is  up  to  modern 
practice  generally";  and  (2)  that  "  the  physical 

42  Letter  of  the  Premier  to  the  President  of  the  Bell  Telephone 
Company,  dated  Winnipeg,  Dec.  30,  1907.  Sessional  Papers.  Leg- 
islative Assembly  of  Manitoba.  Session  1908,  p.  359.  Cf.  the  Mani- 
toba Free  Press,  Winnipeg,  January  i,  1908.  The  original  docu- 
ments prove  that  the  overtures  in  the  transaction  were  made  by  the 
Government  as  early  as  March,  1907.  Cf.  correspondence  between 
the  Premier  and  the  President  of  the  Bell  Company.  Sessional 
Papers.  Legislative  Assembly  of  Manitoba.  Session  1908,  p.  356 
e t  seq. 


30        GOVERNMENT  TELEPHONES 

plant  is  in  a  good  state  of  repair,  and  is  being  kept 
so";43 

(b)  That  at  the  time  of  purchase  between  30 
and  40  per  cent,  of  the  Bell  plant  represented  ad- 
vance construction  for  future  needs;44 

(c)  That  the  depreciated  value  of  the  Bell  plant 
had  been  placed  at  $3,210,098  by  the  Chief  Engineer 
of  the  Provincial  Department  of  Railways,  Tele- 
phones and  Telegraphs  ;  45 

(d)  That  the  criticisms  were  largely  based  on  the 
state  of  the  company's  plant  in  1905,  whereas  the 
plant  had  been  much  more  than  doubled  in  1906  and 
1907  ;46 

(e)  That  competition   with  the   Bell   Company 
would  have  been  costly,  while  the  number  of  Bell  tel- 
ephones was  so  great  that  there  was  no  room  for  a 
dual  system  ;  47 

(f)  That  an  allowance  of  10  per  cent,  should  be 
added  to  the  plant  value  on  account  of  forced  sale, 
franchise,  and  good  will;  48 

(g)  That  the  discount  on  the  bonds  given  in  pay- 
ment was  at  least  7}4  per  cent.;  49 


43  Report  of  Chief  Engineer,  Department  of  Railways,  Telephones 
and  Telegraphs,  dated  Winnipeg,  Dec.  28th,  1907.       Sessional  Pa- 
pers.   Legislative  Assembly  of  Manitoba.    Session  !Qo8,  pp.  364-368. 

44  Ibid. 

45  Ibid. 

46  Speech  of  the  Premier  to  the  Legislature,  February  13,  1908; 
reported  in  The  Winnipeg  Telegram,  February  14,  1908. 

47  Ibid. 

48  Ibid. 


ACQUISITION  OF  BELL  SYSTEM      31 

(h)  That  the  purchase  of  a  going  concern  elim- 
inated the  necessity  for  the  payment  of  interest  on 
the  large  amount  of  capital  invested  in  non-revenue- 
producing  plant  during  the  period  of  construction.50 

Although  the  answer  of  the  Government  has  never 
had  any  appreciable  effect  on  its  critics,  the  im- 
partial observer  cannot  fail  to  be  impressed  with  the 
strength  of  the  Government's  case.  In  view  of  the 
numerous  intangibles  which  the  Government  pointed 
out  were  legitimately  involved  in  the  purchase,  the 
fairness  of  the  price  cannot  be  determined  from  any 
mere  valuation  of  the  plant.  At  the  time  the  pur- 
chase was  effected  the  Opposition  press  admitted  that 
"  at  the  present  market  price  of  provincial  bonds  the 
price  paid  for  the  system  at  the  present  time  is,  in 
round  figures,  about  $3,000,000."  51  If  similar  al- 
lowances be  made  for  the  other  factors  besides  bond 
discount,  there  is  no  escape  from  the  conclusion  that 
the  price  paid  for  the  plant  and  its  inseparable  in- 
tangibles was  not  unreasonable. 

The  result  of  the  transaction  was  that  the  debt  of 
the  Province  was  doubled  at  a  stroke,  while  the  Prov- 
ince, without  fully  realizing  it,  had  committed  itself 
to  still  larger  expenditures  for  future  telephone  pur- 
poses. Moreover,  it  should  have  been  realized, 
though  it  was  not,  that  these  expenditures  would  in- 
evitably prevent  expenditures  in  public  works  which 

50  Speech  of  the  Premier  to  the  Legislature,  February  13,  1908. 

51  The  Manitoba  Free  Press,  Winnipeg,  January  i,  1908. 


32         GOVERNMENT  TELEPHONES 

might  be  undertaken  as  belonging  to  unquestionably 
Governmental  functions.  Thus,  when  at  a  later 
date  the  development  of  the  extensive  water  powers 
of  the  Province  was  proposed,52  the  Province  was 
unable  to  undertake  this  important  public  work  be- 
cause its  credit  was  so  deeply  involved  in  the  tele- 
phone enterprise  that  the  necessary  funds  could  not 
be  procured. 

PROMISES  OF  THE  GOVERNMENT  AS  TO  REDUCTION 

OF   RATES,    COMMERCIAL   MANAGEMENT,   AND 

PROFITABLE   OPERATION 

Immediately  upon  the  announcement  of  the  ac- 
quisition of  the  Bell  system,  the  Government  re- 
newed its  pre-election  pledges  as  to  reduction  of 
rates  53  and  as  to  profitable  operation.  The  Min- 
ister of  Railways,  Telephones  and  Telegraphs 54 
even  went  so  far  as  to  estimate  the  expected  amount 
of  profit  and  announced  that,  after  the  deduction  of 
all  interest  and  sinking  fund  charges,  there  would  be 

52  Cf.  the  report  on  the  Projected  Hydro-Electric  System  for  the 
Province  of  Manitoba,  by  H.  A.  Robson,  K.  C.,  formerly  Public 
Utilities  Commissioner. 

53  It  should  be  noted  that  the  promises  as  to  rates  which  were  made 
before  the  purchase  of  the  Bell  system  was  contemplated,  were  by 
no  means  prejudicially  affected  by  the  eventual  purchase;  indeed, 
the  sole  effect  of  the  purchase  would  be  to  facilitate  the  fulfillment 
of  these  promises,  inasmuch  as  the  purchase  was  consummated  by  the 
Government   as  being,   in   the   end,   more   economical   and   advan- 
tageous than  the  construction  of  a  public-owned  system. 

54  A  Department  of  Railways,  Telephones  and  Telegraphs,  with 
a  small  technical  staff,  had  been  created  as  early  as  March,  1907. 
Cf.  the  Manitoba  Free  Press,  Winnipeg,  March  16,  1907. 


ACQUISITION  OF  BELL  SYSTEM      33 

an  annual  surplus  of  over  $30,000,  and  that  this 
amount  would  be  increased  to  over  $100,000  by  the 
elimination  of  head  office  expenses,  which  were  de- 
clared to  be  unnecessary.55  The  Government  also 
undertook  another  public  pledge  and  declared  its 
intention  of  managing  the  telephone  system  as  a  com- 
mercial undertaking,  i.  e.,  on  a  strictly  business  basis, 
without  political  partisanship  or  influence.  On  the 
very  day  of  the  purchase,  the  Premier  stated :  ;<  We 
shall  operate  the  system  by  a  commission,  which  will 
be  free  from  all  partyism."  56  In  speaking  of  the 
contemplated  Commission  before  the  Legislature  on 
January  7,  1908,  the  Premier  said:  "  We  have 
reached  the  conclusion  that  it  is  in  the  public  interest 
that  that  commission  .  .  .  shall  be  free,  as  far  as  it 
is  possible  to  make  it,  from  party  or  political  influ- 
ence. .  .  .  We  have  reached  this  conclusion  for  the 
reason  that  it  is  a  commercial  business;  that  it  enters 
into  the  life  and  business  of  every  home  and  office 
that  uses  a  telephone;  that  the  service  to  be  efficient 
and  satisfactory  must  be  of  the  very  best  type  or 
kind;  and  to  secure  that  we  must  have  men  in  charge 
who  have  no  interests  to  serve  —  who  are  subject  to 
no  influence  other  than  such  as  is  of  a  telephone  kind 
or  character.  .  .  .  And  as  the  credit  of  the  prov- 
ince has  been  used  to  purchase  this  service,  it  is  the 
bounden  duty  of  the  government  ...  to  place  the 

56  The  Manitoba  Free  Press,  Winnipeg,  February  4,  1908. 
66  The  Manitoba  Free  Press,  Winnipeg,  January  i,  1908. 


34        GOVERNMENT  TELEPHONES 

service  in  the  hands  of  men  whose  life  business  is  to 
give  a  telephone-user  the  best  service  possible,  and 
have  him  realize  that  anything  that  is  done  is  with 
a  view  of  bettering  the  service,  and  is  not  done  from 
a  political  or  a  party  motive  or  influence."  57  Speak- 
ing before  the  Legislature  on  February  13,  1908,  the 
Premier  said:  "  It  is  the  settled  policy  of  the  gov- 
ernment and  those  who  support  it,  that  there  shall  be 
no  influence  exercised  or  used  upon  that  commission 
in  any  way,  in  so  far  as  it  affects  the  management  and 
operation  of  that  system.  We  want  the  system  to 
be  an  ideal  one,  one  that  will  enjoy  the  confidence 
of  my  honorable  friends  opposite  "  • —  i.  e.  the  Op- 
position—  "to  as  great  an  extent  as  it  enjoys  the 
confidence  of  the  gentlemen  on  this  side  "  —  i.  e.  the 
Government  party.  "  We  feel  that  it  must  be  kept 
clean  and  clear  of  all  party  politics  or  influence."  58 

To  recapitulate,  in  order  to  make  political  capital, 
both  political  parties  in  Manitoba  diligently  pro- 
moted a  belief  that  the  people  of  the  Province  were 
paying  tribute,  in  the  form  of  exorbitant  charges, 
to  the  limitless  greed  of  a  conscienceless  octopus.  In 
those  days  little  effort  was  required  to  arouse  a 
popular  sentiment  against  any  relatively  large  vested 
interest.  It  was  but  natural,  then,  that  within  a 
comparatively  short  time  the  shrewd  politicians  were 
safely  able  to  force  the  telephone  question  to  the 

57  The  Manitoba  Free  Press,  Winnipeg,  January  8,  1908. 

58  The  Winnipeg  Telegram,  February  14,  1908. 


ACQUISITION  OF  BELL  SYSTEM      35 

front.  These  politicians,  too,  did  not  fail  to  grasp 
the  usefulness  of  a  promised  rate  reduction  as  a 
vote-catching  device.  Government  ownership  of 
telephones  was  adopted  in  Manitoba,  not  because  of 
dissatisfaction  with  the  quality  and  efficiency  of  the 
service  furnished  by  the  Bell  Telephone  Company 
and  not  because  of  any  administrative  abuses  on  the 
part  of  that  company,  but  primarily  as  a  means  of 
reducing  rates  to  the  end  that  political  advantage 
might  be  secured  by  the  Government. 

For  the  purpose  of  securing  popular  support,  the 
Government  made  a  number  of  definite  promises 
both  before  and  after  the  acquisition  of  a  public- 
owned  telephone  system.  Among  these  promises 
were  three  cardinal  pledges,  explicitly  and  unequiv- 
ocally undertaken: 

1.  That  the  Bell  rates  would  be  greatly  reduced, 
"  cut  in  two  "  being  the  term  generally  employed; 

2.  That  the  entire  cost  of  operating  the  service 
would  be  borne  by  the  telephone  users,  i.  e.,  that  the 
system  would  be  self-supporting; 

3.  That  the  management  of  the  system  would  be 
on  a  strictly  commercial  basis,  absolutely  free  from 
political  considerations  or  influence. 

In  considering  the  history  of  the  Government  tel- 
ephone enterprise,  these  pledges  must  constantly  be 
borne  in  mind. 


II 

THE  GOVERNMENT  SYSTEM  UNDER 
THE  FIRST  COMMISSION 

TELEPHONE    MANAGEMENT    VESTED    IN    A    COMMIS- 
SION  UNDER  THE    CONTROL   OF  THE 
GOVERNMENT 

THE  management  of  the  Government's  newly- 
acquired  system  was  committed  to  a  Telephone  Com- 
mission of  three  members,  this  Commission  being 
nominally  independent  but  actually  subordinated  to 
a  Department  of  Telephones  and  [Telegraphs,  pre- 
sided over  by  a  Cabinet  Minister.  The  Commis- 
sioners appointed  by  the  Government  were  men  of 
many  years'  telephone  experience  in  the  service  of 
the  Bell  Telephone  Company  in  the  Northwest  and 
were  unquestionably  well  qualified  for  the  task  of 
managing  a  telephone  system  under  normal  condi- 
tions.1 Moreover,  all  three  were  recognized  not 
only  by  the  Company  and  by  the  Government,  but 
also  by  the  public,  as  men  of  high  personal  character 
and  as  entirely  detached  from  any  political  affilia- 
tion. These  Commissioners  were  Mr.  F.  C.  Pater- 

1  Cf.  The  Gazette,  Montreal,  January  4,  1908. 

36 


UNDER  FIRST  COMMISSION  '       37 

son,  who  was  appointed  Chairman,  Mr.  W.  H. 
Hayes,  the  Commissioner  Engineer,  and  Mr.  H. 
J.  Horan,  the  Commissioner  Auditor.  The  salary 
of  the  Chairman  was  fixed  at  $5,000  per  annum;  the 
salaries  of  the  two  other  members  were  set  at  $3,000 
each.2  It  is  inconceivable  that  men  of  such  proved 
ability  should  suddenly  become  incompetent;  if  in- 
efficiency and  extravagance  appear,  they  must  be 
charged  to  causes  beyond  the  control  of  the  Com- 
mission. 

The  Commissioners  were  officially  appointed  on 
January  15,  1908,  and  took  up  their  duties  on  that 
day.  The  functions  of  the  Commission,  as  origin- 
ally fixed,  gave  it  the  power  to  operate  the  system, 
to  appoint  and  discharge  employees,  to  fix  rates,  and 
to  connect  subscribers  to  the  system,  provided  that 
if  the  cost  of  such  connection  exceeded  $500,  the  ap- 
proval of  the  Minister  of  Telephones  and  Tele- 
graphs must  first  be  obtained.3  The  Commission 
was  not  empowered  to  purchase  supplies,  but  was  re- 
quired to  send  requisitions  for  all  supplies  to  the 
Minister  at  least  three  months  before  the  supplies 
were  needed;  and  the  Minister  retained  an  engineer- 
ing staff  of  his  own  in  control  of  construction.4  At 

2  Order-in-Council  No.  12545.  Sessional  Paper  No.  14.  Ses- 
sional Papers.  Legislative  Assembly  of  Manitoba.  Session  1908, 
PP-  574-5- 


4  Order-in-Council  No.  12545.     Cf  .  Statutes  of  Manitoba,  7-8  Edw. 
VII,  1908,  cap.  63. 


38         GOVERNMENT  TELEPHONES 

this  point  it  should  be  observed  that,  whereas  in  the 
Bell  Company's  organization  the  local  administrative 
officers  were  subject  to  the  supervision  of,  and  re- 
ceived assistance  from,  the  staff  of  experts  at  head- 
quarters (Montreal),  when  the  Commissioners  en- 
tered the  service  of  the  Manitoba  Government  they 
found  themselves  suddenly  deprived  of  the  assistance 
which  they  had  received  from  the  Montreal  staff  of 
the  Bell  Company,  all  supervision  and  control  being 
vested  in  the  Minister,  or,  in  reality,  in  a  group  of 
politicians  who  had  no  knowledge  whatever  of  the 
telephone  business. 

TELEPHONE    POLICIES    DETERMINED    BY    POLITICAL 
CONSIDERATIONS;   GOVERNMENTAL   INTERFER- 
ENCE IN  THE  TELEPHONE  MANAGEMENT 

In  spite  of  the  Government's  explicit  pledge  that 
political  considerations  would  be  eliminated  from 
the  telephone  management,  such  considerations  ap- 
peared at  the  very  outset  and,  as  a  matter  of  fact, 
dominated  the  Telephone  Commission  throughout 
its  existence.  The  first  effect  of  political  control  was, 
perhaps,  in  the  matter  of  construction.  The  votes 
of  the  farming  population  being  essential  to  the  po- 
litical welfare  of  the  Government,  the  Government, 
once  in  control  of  the  system,  made  haste  to  curry 
favor  with  the  farmer  by  forcing  the  Commission  to 
adopt  a  policy  of  rapid  extension  of  rural  lines  with- 
out regard  to  the  legitimate  demand  for  this  exten- 


UNDER  FIRST  COMMISSION          39 

sion  of  the  service.  There  can  be  no  doubt  that  the 
Commissioners  pointed  out  the  detrimental  effects 
such  an  unscientific  and  unnecessary  policy  would 
have  both  upon  expenses  and  upon  organization;5 
but  remonstrance  on  the  part  of  the  Commissioners 
was  futile,  since  they  were  dealing  with,  and  were 
under  the  control  of,  astute  politicians  whose  sole 
object  was  the  retention  of  political  power.6  More- 
over, the  policy  of  rapid  construction  included  the 
provision  of  a  considerable  amount  of  free  service 
and  other  discriminations  in  the  rural  districts,  which 
were  also  in  violation  of  the  promise  of  non-partisan 
commercial  management.7 

Nor  were  these  the  only  immediate  effects  of  the 
political  influence  which  surrounded  the  administra- 
tion of  the  system.  Even  in  matters  of  detail  the 
Commission  was  subjected  to  pressure  by  members 
of  the  Provincial  Cabinet.  For  example,  after  the 
Government's  acquisition  of  the  telephone  system, 
one  of  the  members  of  the  Government  exerted 
an  irresistible  influence  upon  the  Commission  to 
requisition  an  excessive  number  of  poles,  since  the 

5  Cf.  Stenographic  Report  of  Evidence  before  the  Royal  Commis- 
sion of  Inquiry  1912   (typewritten),  vol.  i,  p.  35  et  seg.     This  Re- 
port is  mentioned  on  p.  97  infra  and  is  hereafter  cited  as  Steno- 
graphic Report. 

6  The  members  of  the  Government  who  really  determined  tele- 
phone policies  conveyed  their  instructions  to  the  Commission  orally, 
carefully   refraining  from  committing  themselves  to   documentary 
evidence  which  might  be  brought  against  them. 

7  Stenographic  Report,  vol.  i,  pp.  100-101. 


40         GOVERNMENT  TELEPHONES 

contract  for  these  poles  could  be  placed  with  certain 
clients  of  his  who  were  then  involved  in  financial  dif- 
ficulties and  the  payment  for  the  poles  would  relieve 
the  pressure  upon  them.8  "  Recommendations " 
even  as  to  the  employment  of  individuals  were  made 
by  Cabinet  Ministers ;  and  although  the  Commission 
was  under  no  statutory  obligation  to  act  upon  these 
"  recommendations,"  nevertheless  it  was  well  under- 
stood that  the  smooth  working  of  the  Commission- 
ers' relations  with  the  Government  depended  upon 
the  adoption  of  the  "  recommendations,"  which  were 
always  orally  communicated.  Moreover,  it  will  be 
recalled  that  the  prescribed  functions  of  the  Com- 
mission did  not  include  the  purchasing  of  supplies, 
the  control  over  such  purchases  being  specifically  re- 
served to  the  Government;  that  is,  while  the  Com- 
mission prepared  requisitions,  the  Government  de- 
cided to  whom  contracts  should  be  given.  These 
contracts  were  awarded  for  political  effect  and  were 
made  instruments  by  means  of  which  the  party  po- 
litical organization  was  strengthened  and  party  funds 
were  collected  from  the  contractors.  This  system, 
of  course,  is  one  which  is  practised  by  both  political 
parties,  though  party  interest  prevents  its  sordid  de- 

8  Cf.  p.  103,  infra.  An  advertisement  calling  for  tenders  for  25,- 
ooo  poles  appeared  in  the  newspapers  of  November  5,  1908.  On  the 
excessive  number  of  poles  purchased  by  the  Commission  in  conse- 
quence of  political  pressure,  see  e.  g.  Stenographic  Report,  vol.  iii, 
p.  143  et  seq. 


UNDER  FIRST  COMMISSION          41 

tails  from  coming  to  the  knowledge  of  the  public  ex- 
cept in  rare  and  flagrant  cases. 

In  the  realm  of  finance,  too,  the  Government 
failed  to  keep  its  promises  of  commercial  man- 
agement. From  the  beginning  of  the  Government 
telephone  service,  the  Commission  was  required  to 
pay  all  its  "  receipts  from  earnings  "  into  the  Provin- 
cial Treasury  and  to  draw  upon  the  Treasury  for  the 
funds  to  meet  all  expenses ;  9  and  thus  there  was 
neither  created  nor  maintained  any  reserve  against 
depreciation  or,  in  fact,  any  reserve  of  any  kind  what- 
ever.10 The  natural  result  of  such  political  account- 
ing methods  was  that  in  each  of  the  first  three  years 
of  Government  operation  the  books  of  the  system 
showed  an  "  excess  of  revenue  over  expenditure  " 
which  was  erroneously  described  as  a  "  surplus  "  ; 
while  political  credit  was  taken  for  these  fictitious 
profits  and  the  success  of  Government  operation  of 
telephones  in  Manitoba  was  widely  trumpeted. 
Furthermore,  it  must  again  be  noted  that  the  Gov- 
ernment continued  such  unsound  methods  of  ac- 
counting in  direct  opposition  to  the  advice  of  the  Tel- 
ephone Commission.  The  Commission  pointed  out 
that  an  annual  depreciation  charge  of  at  least  6  per 
cent,  upon  plant  cost  ought  to  be  made,  but  still  the 
Commission  was  not  permitted  by  the  Government 

9  Order-in-Council  No.  12545. 

10  Stenographic  Report,  vol.  i,  pp.  28-29. 


42         GOVERNMENT  TELEPHONES 

to  set  aside  any  reserve,  even  to  meet  reconstruction 
expenses.11 

A    SECTIONAL   INCREASE   IN   RATES;    TELEPHONE 

MANAGEMENT   DOMINATED   BY    POLITICAL 

INFLUENCE 

In  spite  of  the  Government's  glib  promises  to  the 
effect  that  the  Bell  rates  were  to  be  "  cut  in  two,"  in- 
stead of  a  reduction  in  rates,  the  immediate  result  of 
Government  ownership  was  a  substantial,  though  sec- 
tional, increase.  Under  the  Bell  Company,  the  tele- 
phones of  physicians,  dentists  and  nurses  had  been 
granted  a  reduced  rate;  on  February  20,  1908,  the 
Commission  issued  a  circular  announcing  that  there- 
after such  telephones  would  be  charged  for  at  the 
regular  rate  for  business  service,  representing  an  in- 
crease of  25  per  cent.12  Although  this  increase  can- 
not, in  itself,  be  especially  condemned,  nevertheless 
the  Commission's  action  caused  much  controversy 
because  it  was  such  a  flagrant  violation  of  the  Gov- 
ernment's promises  in  regard  to  rates.  Almost  from 
the  beginning  the  Telephone  Commission  found 
itself  the  target  of  hostile  criticism,  for  although  it 
had  not  been  in  the  least  responsible  for  the  prom- 
ises made  by  the  Government,  yet  it  was  in  the  posi- 
tion of  having  to  bear  the  responsibility  for  any  fail- 
ure to  fulfill  these  promises. 

11  Stenographic  Report,  vol.  i,  p.  31  et  seq.    Cf.  also  p.  55,  note 
42,  Infra. 

12  A  copy  of  this  circular  letter  is  given  in  the  Winnipeg  news- 
papers of  February  22,  1908. 


UNDER  FIRST  COMMISSION         43 

The  immediate  action  of  the  Government  in  rela- 
tion to  their  pledges  having  thus  been  briefly  indi- 
cated, with  these  pledges  in  mind  we  are  now  pre- 
pared to  follow  the  history  of  the  enterprise.  So 
far  as  practicable,  this  history  will  be  given  chron- 
ologically. 

In  the  first  place,  notwithstanding  the  activity  of 
the  Government  in  construction  work,  they  did  not 
move  fast  enough  to  suit  the  Opposition.  For  in- 
stance, about  three  months  after  the  purchase,  the 
Opposition  paper  in  Winnipeg  denounced  the  Gov- 
ernment for  failing  to  provide  at  least  1,000  miles 
of  additional  long  distance  lines.13  The  political  ef- 
fect of  such  attacks  was  not  lost  upon  the  Govern- 
ment, who  saw  themselves  forced  to  adopt  a  policy 
of  the  most  feverish  energy  in  construction, —  an  il- 
lustration of  the  fact  that,  after  all,  both  political 
parties  have  been  implicated  in  the  mismanagement 
of  the  system.  As  has  already  been  indicated,  the 
speed  at  which  construction  was  forced  in  the  years 
1908  to  1911  was  very  costly;  but  the  Commission 
was  told  to  go  on,  that  the  Province  could  sustain 
the  financial  burdens  involved.  The  Commission 
was  obliged  to  erect  unprofitable  and  unnecessary 
rural  lines,  to  convert  toll  offices  into  exchanges  be- 
fore the  amount  of  business  warranted  the  change, 
to  give  night  service  in  small  exchanges  where  day 
service  would  have  sufficed  and  to  give  free  service 

13  The  Manitoba  Free  Press,  Winnipeg,  April  n,  1908. 


44         GOVERNMENT  TELEPHONES 

between  certain  exchanges,14 —  all  of  which  was  done 
at  the  instance  of  the  Government  in  order  to  placate 
political  opponents  or  to  gratify  supporters,  and  also 
in  order  to  increase  the  patronage  of  the  Govern- 
ment and  to  promote  the  illusion  that  the  system  was 
prospering.  Moreover,  attention  should  again  be 
called  to  the  fact  that  it  was  impossible  to  expand 
the  internal  organization  to  keep  pace  with  the  ex- 
pansion in  plant.  Also,  the  scarcity  of  labor  com- 
pelled the  Commission  to  keep  an  excessive  number 
of  men  on  the  permanent  pay-rolls,  while,  as  a  mat- 
ter of  actual  practice,  the  Commission  was  unable  to 
select  its  employees.15  Men  were  forced  upon  fore- 
men by  members  of  the  Provincial  Legislature ;  Cab- 
inet Ministers  made  "  recommendations  "  over  the 
telephone,  while  at  the  same  time  solemnly  assuring 
the  public  that  the  Commission  was  not  being  inter- 
fered with  and  that  the  business  was  being  conducted 
on  a  commercial  footing.  Indeed,  hangers-on  of 
both  parties  were  always  on  the  look-out  for  political 
crumbs;  in  the  words  of  one  of  the  Commissioners  it 
is  found  that  "  the  whole  running  of  the  system  has 
been  permeated  with  politics."  16  Finally,  while  the 
Government  was  playing  fast  and  loose  with  the 
real  interests  of  the  Province,  the  people  were 

14  Memorandum  by  the  Commissioner  Auditor  (typewritten)  pre- 
pared early  in  1912. 
•I5  Ibid. 
i«  Ibid. 


UNDER  FIRST  COMMISSION         45 

scarcely  less  culpable.  They  appeared  to  be  de- 
moralized by  the  fact  that  the  telephone  was  a  Gov- 
ernment undertaking  and  exploited  the  telephone  ad- 
ministration in  every  way.17 

After  the  Minister  of  Telephones  and  Telegraphs 
(i.  e.,  the  Government)  had  awarded  most  of  the 
contracts  for  the  first  season  of  construction,18  a 
change  in  the  form  of  administration  took  place. 
The  existence  of  a  Ministerial  Department  of  Tele- 
phones and  Telegraphs  in  addition  to  the  Telephone 
Commission  had  led  to  division  of  control  and  re- 
sponsibility as  well  as  to  duplication  of  labor.  Six 
months  after  the  transfer  of  the  Bell  system  to  the 
Government,  this  dual  control  became  not  only  ob- 
viously absurd  but  also  positively  embarrassing  to 
the  Government,  for  both  the  telephone  users  and 
the  general  public  regarded  the  Telephone  Depart- 
ment, and  not  the  Telephone  Commission,  as  the 
real  authority  and  therefore  complaints  and  demands 

1T  A  side-issue  of  the  Government's  construction  policy  should  be 
mentioned  here.  Even  after  the  Bell  system  in  Manitoba  had  been 
acquired,  the  Government  did  not  entirely  abandon  its  cherished 
attitude  toward  municipal  ownership  of  local  exchanges,  but  contin- 
ued to  encourage  municipalities  to  install  local  systems  by  offering  to 
provide  plans,  to  superintend  construction,  to  supply  the  necessary 
materials  at  cost,  and  to  guarantee  the  debentures  issued  by  the  mu- 
nicipalities to  secure  the  funds  necessary  for  the  establishment  of  such 
systems.  This  policy  was  so  far  from  being  successful,  however, 
that  not  only  were  few  new  municipal  telephone  systems  established, 
but  some  of  those  which  were  in  existence  at  the  time  of  the  acquisi- 
tion of  the  Bell  system  were  subsequently  sold  to  the  Government. 

18  Cf.  the  Manitoba  Free  Press,  Winnipeg,  June  3,  1908;  The 
Winnipeg  Telegram,  June  4,  1908. 


46        GOVERNMENT  TELEPHONES 

for  exceptional  consideration  were  made  either  di- 
rectly to  the  Telephone  Department  or,  more  fre- 
quently, through  a  member  of  the  Legislature  to  the 
Minister.  The  Government  thus  saw  themselves  in 
a  position  of  responsibility,  and  this  responsibility 
having  soon  become'  intolerably  embarrassing,  it  be- 
came necessary  to  take  further  action  to  throw  the 
nominal  responsibility  upon  the  shoulders  of  the 
Commission.  Therefore,  in  June,  1908,  the  Min- 
ister of  Telephones  dispensed  with  the  technical  staff 
which  he  had  employed  in  the  Telephone  Depart- 
ment at  a  cost  of  $10,000  a  year,  and  the  power  to 
purchase  supplies  was  transferred  to  the  Commis- 
sion, the  Minister  retaining,  however,  the  power  of 
"  supervision."  19  Thus  this  administrative  change 
was  essentially  a  change  in  form  without  a  change  in 
substance,  for  so  long  as  the  Minister  retained 
"  supervisory  "  powers  the  Commission  could  not  be 
free  from  political  influence.  As  a  matter  of  fact, 
the  chief  result  of  this  change  in  the  form  of  admin- 
istration was  to  enable  members  of  the  Government 
to  reply  to  inconvenient  claims  and  complaints  to  the 
effect  that  the  patronage  had  passed  out  of  their 
hands  into  those  of  the  Commission,  while  it  still  re- 
mained open  to  the  Government  to  bring  pressure  to 
bear  upon  the  Commission  in  order  that  political  in- 
terests might  be  adequately  served. 

19  The  Manitoba  Free  Press,  Winnipeg,  June  13,  1908.     Cf.  Or- 
der-in-Council  No.  13011. 


UNDER  FIRST  COMMISSION          47 

While  the  Telephone  Commission  was  doing  its 
best  —  under  pressure  —  to  carry  out  the  Govern- 
ment's policy  in  regard  to  the  rapid  extension  of  the 
telephone  system  (a  policy  dictated  solely  by  politi- 
cal expediency),  the  Commission  could  not  redeem 
the  pledges  in  regard  to  the  reduction  of  rates.  In 
general  the  Bell  rates  continued  to  be  retained 
throughout  1908;  in  certain  cases  (some  of  which 
have  already  been  mentioned)  they  were  materially 
increased.20  The  Opposition  newspapers  did  not 
cease  denouncing  the  members  of  the  Government  for 
having  failed  to  live  up  to  their  promises;  but  the 
fault  lay  in  having  made  the  promises  rather  than  in 
having  failed  to  fulfill  them.  Had  the  Government 
met  all  the  demands  of  the  Opposition  —  or,  indeed, 
all  those  of  the  public  —  the  telephone  enterprise 
would  speedily  have  been  reduced  to  hopeless  bank- 
ruptcy; even  as  it  was,  the  credit  of  the  Province  had 
undoubtedly  suffered.21  The  general  situation  cer- 
tainly justified  the  following  summary  made  by  an 
Opposition  newspaper  toward  the  close  of  the  first 
summer  of  Government  operation:  "  The  carrying 
out  of  the  Government's  telephone  policy  has  re- 
sulted in  the  people  of  Manitoba  having  had  placed 
upon  them  an  indebtedness  of  close  upon  $4,000,000. 
The  interest  on  this  indebtedness  makes  a  heavy 
fixed  annual  charge.  The  service  is  no  better  than 

20  Cf.  the  Manitoba  Free  Press,  Winnipeg,  August  28,  1908. 

21  Cf.  the  Manitoba  Free  Press,  Winnipeg,  September  22,  1908. 


48         GOVERNMENT  TELEPHONES 

was  given  by  the  Bell  Telephone  Co.,  whose  share- 
holders now  hold  the  Province's  bonds  and  have  to 
be  paid  their  interest  regularly.  The  rates  are  no 
lower  than  the  Bell  rates  were,  in  some  cases  they 
are  higher."  22  The  accusations  against  the  Gov- 
ernment, however,  were  disposed  of  in  the  most  cav- 
alier manner;  for  example,  one  of  the  Cabinet  Min- 
isters said  quite  cynically  that  "  when  they  engaged 
in  the  battle  with  the  Bell  Telephone  Company,  it 
was  necessary  to  make  strong  statements "  23 — 
which  is  tantamount  to  a  frank  avowal  that  the  state- 
ments made  by  the  members  of  the  Government  dur- 
ing the  telephone  agitation  were  made  without  re- 
gard to  truth. 

SUBSTANTIAL   PROFITS   FROM   THE    FIRST  YEAR'S 
OPERATIONS   ALLEGED   BY  THE   GOVERNMENT 

In  November  1908,  when  the  Government  tele- 
phones had  been  in  operation  for  almost  a  year,  a 
rumour  was  circulated  to  the  effect  that  rates  would 
be  "  cut  in  half"  on  January  i,  1909,  this  rumour 
being  based  upon  a  statement  of  a  Cabinet  Minister 
that  the  Telephone  Department,  for  its  first  year, 
would  show  a  profit  of  $2OO,ooo.24  In  December 

22  The  Manitoba  Free  Press,  Winnipeg,  September  22,  1908. 

23  The  Manitoba  Free  Press,  Winnipeg,  November  16,  1908. 

24  Cf.    The  Minneapolis    (Minn.)    Journal,   November    14,    1908; 
The  Detroit  News   Tribune,  November  15,   1908;   the  New  York 
Tribune,  November  16,  1908. 


UNDER  FIRST  COMMISSION         49 

1908,  Winnipeg  and  other  papers  contained  re- 
peated announcements  "  on  reliable  authority  "  that 
the  first  year  of  Government  telephone  operation  had 
been  so  successful  that  there  would  be  a  profit  of 
$2OO,ooo,25  $225, ooo,26  or  $25O,ooo.27  Again,  in 
January  1909,  a  Cabinet  Minister  took  credit  to  the 
Government  for  the  alleged  profit  and  announced 
that  "  with  such  a  showing  there  is  no  doubt  that  we 
will  reduce  rates."  28  That  these  press  statements 
were  inspired  by  the  Government  is  shown  by  the 
fact  that  similar  claims  were  made  at  about  the  same 
time  by  members  of  the  Government  in  election 
speeches ;  and  such  statements  were  employed  widely 
to  induce  a  belief  in  the  success  of  the  Manitoba  tel- 
ephone venture,  and  in  the  absence  of  proof  to  the 
contrary  they  were  accepted  in  good  faith. 

The  session  of  the  Manitoba  Legislature  at  which 
the  first  report  of  the  telephone  service  was  pre- 
sented, began  on  February  4,  1909.  kThe  extent  to 
which  the  telephone  was  regarded  as  a  political  issue 
is  illustrated  in  the  statement  of  the  Government  pro- 
gram which  opened  the  session,  for  of  the  four  par- 
agraphs comprising  this  statement,  the  telephone 
question  occupied  two.  In  one  paragraph  it  was  an- 
nounced that  "  a  most  substantial  surplus  has  been 

25  Cf.  Telephony,  Chicago,  December  19,  1908. 

26  Cf.  The  Tribune,  Winnipeg,  December  25,  1908. 

27  Cf.  The  Tribune,  Winnipeg,  February  4,  1909. 

28  The  Manitoba  Free  Press,  Winnipeg,  January  5,  1909. 


50         GOVERNMENT  TELEPHONES 

obtained."  29  A  few  days  later  a  discussion  of  the 
telephone  question  was  introduced  by  an  Oppositon 
member  and  a  vigorous  debate  ensued,  in  the  course 
of  which  one  speaker  said  that  "  he  suggested  that 
members  should  tell  the  Government  what  was 
wanted  in  the  constituencies.  Since  he  had  been  a 
member  ...  he  had  always  laid  his  case  before  the 
Minister  of  Public  Works  and  had  benefited  by  so 
doing.  Every  member  should  do  the  same,  not  only 
to  the  Minister  of  Public  Works,  but  to  every  de- 
partment." 30  In  other  words,  the  exertion  of  politi- 
cal pressure  at  any  point  in  the  Government  would 
produce  the  desired  results ! 

When  a  telephone  profit  was  announced  by  the 
Government,  of  course  its  often  repeated  promise 
that  service  would  be  provided  "  at  cost  "  31  was  re- 
called, and  the  Opposition  newspapers  began  to  de- 
mand "  rebate  cheques  for  telephone,  users."  32  But 
although  members  of  the  Government,  in  pre-elec- 
tion statements,  had  insisted  that  a  profit  of  $200,000 
had  been  produced  the  first  year,  the  Public  Accounts 
of  the  Province,  when  they  were  placed  before  the 
Legislature  on  February  n,  1909,  failed  to  confirm 
these  pre-election  announcements,  but  showed  a 

29  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session  /pop, 
pp.  1-2.     Cf.  The  Winnipeg  Telegram,  February  4,  1909. 

30  The  Winnipeg  Telegram,  February  10,  1909. 

31  Cf.  p.  1 8,  supra. 

32  Cf.  the  Manitoba  Free  Press,  Winnipeg,  February  u,  1909,  and 
February  12,  1909. 


UNDER  FIRST  COMMISSION          51 

"  balance  "  from  the  year's  telephone  operation  of 
only  $168,915,  as  follows:33 

Receipts:  Telephone  rentals  ...  $656,486.74 

Disbursements : 

Paid  to  Telephone  Commis- 
sion    $300,000.00 

Expenses  of  Telephone  De- 
partment    19,319-33 

Interest : 

Debentures — Series    H . .       32,020.00 

Debentures — Series    I...      136,231.67     $487,571.00 


Balance $168,915.74 

On  February  I5th,  the  Provincial  Treasurer,  in 
explaining  his  budget  for  the  year  1909,  said  that  the 
Government  confidently  believed  that  its  telephone 
policy  was  sound  and  that  it  was  giving  "  a  serv- 
ice that  was  equally  as  cheap  as  similar  services  are 
being  given  elsewhere."  No  reference  was  made  to 
the  fact  that  this  opinion  as  to  the  cheapness  of  the 
service  was  not  the  view  which  had  been  presented 
by  members  of  the  Government  in  regard  to  the  rates 
prior  to  the  acquisition  of  the  system, —  rates  which 
had  not  been  reduced  by  the  Government.  The 
Provincial  Treasurer  also  declared  that  since  only 
a  small  proportion  of  the  population  of  Manitoba 
were  telephone  users,  whereas  the  whole  population 

33  Sessional  Papers.    Legislative  Assembly  of  Manitoba.    Session 
1909,  pp.  in,  355-357- 


52         GOVERNMENT  TELEPHONES 

had  become  responsible  for  the  debt  on  the  telephone 
account,  the  excess  of  revenue  over  expenditure 
should  go  into  the  general  exchequer  of  the  Prov- 
ince.34 He  failed  to  observe,  though,  that  this  posi- 
tion was  quite  inconsistent  with  the  Government's 
promise  to  provide  telephones  "  at  cost."  85 

The  Opposition  press  was  not  slow  in  detecting 
the  peculiar  system  of  accounting,  or  rather  the  lack 
of  proper  accounting,  as  a  result  of  which  this  ap- 
parent surplus  of  $168,915  made  its  appearance. 
For  example,  it  was  shown  that  the  current  expenses 
of  the  Commission  during  the  year  ($300,000) 
amounted  to  only  46  per  cent,  of  the  gross  receipts, 
whereas  under  the  Bell  Company  during  the  ten 
years  1895-1904  the  annual  percentage  of  operating 
and  maintenance  expenses  to  gross  receipts  had  aver- 
aged 71  per  cent.,  so  that  it  appeared  that  the  Gov- 
ernment had  really  charged  practically  all  mainte- 
nance expenses  to  plant  account.  The  Manitoba 
Free  Press  pointed  out  that  if  all  maintenance  ex- 
penses had  been  charged  against  revenue  and  if 
combined  operating  and  maintenance  expenses  had 
consumed  only  70  per  cent,  of  gross  receipts,  then 
this  "surplus"  of  $168,915  would  have  almost 
disappeared;  and  the  Free  Press  naturally  con- 
cluded that  if  the  Government,  to  "  save  its  face," 
should  reduce  the  rates,  it  would  "  involve  the  Prov- 

34  The  Winnipeg  Telegram,  February  16,  1909. 
85  Cf.  p.  1 8,  supra. 


UNDER  FIRST  COMMISSION          53 

ince  in  heavy  financial  loss."  36  However,  even  the 
re-statement  of  the  accounts  made  by  the  Free  Press 
included  no  charge  for  accrued  depreciation. 

The  accounts  of  the  Telephone  Department  were 
issued  a  few  days  after  the  Public  Accounts  had  been 
presented  to  the  Legislature.37  The  component 
items  of  these  accounts  did  not  agree  with  those  given 
in  the  Public  Accounts,  since  —  for  example  —  the 
gross  revenue  included  a  large  amount  of  unearned 
rentals;  but  the  accounts  disclosed  no  materially  dif- 
ferent state  of  affairs,  though  by  making  allowances 
for  unearned  rentals  and  for  accrued  depreciation 
the  Opposition  press  was  able  to  argue  that  the  real 
result  of  the  year's  operations  was  a  deficit  of  about 
$3O,ooo.38 

REAL    DEFICIT    IN    1908    CONCEALED    BY    UNSOUND 
ACCOUNTING   METHODS 

Although  it  is  true  that  the  telephone  accounts 
for  1908  as  given  both  by  the  Provincial  Treasurer 
and  by  the  Telephone  Department  were  character- 
ized by  a  total  lack  of  the  elementary  principles  of 
commercial  accounting,  the  revisions  of  the  accounts 
made  by  the  Opposition  were  also  unscientific  and 
cannot  be  accepted  as  accurate  representations  of  the 
true  situation.  In  order  to  arrive  at  any  approx- 

16  The  Manitoba  Free  Press,  Winnipeg,  February  16,  1909. 

37  The  Winnipeg  Telegram,  February  23,  1909. 

38  The  Manitoba  Free  Press,  Winnipeg,  February  24,  1909. 


54        GOVERNMENT  TELEPHONES 

imation  of  the  real  financial  results  of  Government 
telephone  operation,  it  will  be  necessary  to  recast  the 
accounts  of  the  system  so  that  they  will  accord  with 
accounting  methods  which  are  recognized  to  be 
sound.  From  the  stand-point  of  sound  accounting 
practice,  the  accounting  methods  employed  by  the 
Government  were  obviously  deficient  in  two  re- 
spects : 

(a)  A  considerable  portion  of  the  maintenance 
expenses  were  charged  to  capital  (instead  of  being 
charged  against  revenue)  ; 

(b)  No  reserve  was  set  aside  to  meet  the  recon- 
struction expenses  arising  from  the  inevitable  con- 
stant depreciation  of  the  plant. 

In  order  to  eliminate  the  effects  of  these  deficien- 
cies upon  the  published  accounts,  the  following  pro- 
cedure has  been  adopted  here : 

(a)  The  amount  of  maintenance  expenses  which 
were  improperly  charged  to  capital  in  the  telephone 
accounts  was  adjudged,  according  to  an  appraisal  of 
the  plant  made  in  I9I5,39  to  reach  in  the  aggregate  to 
$336,232,  all  of  which  sum  was  found  to  have  been 
charged  to  capital  during  the  first  three  years  of 
Government  operation:  1908,  1909  and  1910.  Al- 
though it  is  impossible  to  apportion  this  sum  among 
the  three  years  accurately,  yet  it  is  not  unreasonable 
to  assume  that  the  greater  part  of  it  —  say  80  per 
cent. —  was  charged  to  capital  during  1908  and 

39  Cf.  pp.  151-152,  infra. 


UNDER  FIRST  COMMISSION         55 

1909.  In  recasting  the  accounts  in  these  pages, 
therefore,  40  per  cent,  has  been  allocated  to  the 
year  1908,  40  per  cent,  to  1909,  and  20  per  cent, 
to  1910;  that  is  to  say,  sums  representing  these  per- 
centages of  $336,232  have  been  deducted  from  the 
plant  account  and  have  been  added  to  the  current 
expenses  for  "  Maintenance  "  in  the  respective  years, 
(b)  As  has  already  been  observed,40  the  Tele- 
phone Commission  had  pointed  out  that  in  order  to 
provide  an  adequate  reserve  to  meet  the  reconstruc- 
tion expenses  arising  from  constantly  accruing  de- 
preciation, a  sum  equivalent  to  at  least  6  per  cent,  of 
plant  cost  should  be  set  aside  from  current  revenue 
each  year.  In  view  of  the  fact  that  the  climatic  con- 
ditions in  Manitoba  are  such  as  to  cause  abnormally 
rapid  deterioration  in  out-door  plant,41  it  is  certain 
that  no  less  a  sum  would  have  been  sufficient  to  pro- 
vide an  adequate  reserve ;  and  in  recommending  that 
such  a  sum  be  set  aside,  the  Telephone  Commission- 
ers —  as  they  themselves  did  not  fail  to  point  out  — 
were  understating  rather  than  overstating  the  amount 
of  depreciation  reserve  which  the  best  telephone  en- 
gineering experience  had  found  to  be  necessary.42 

40  Cf.  p.  41,  supra. 

41  Reference  to  the  effect  of  the  "  extraordinary  weather  condi- 
tions "  in  Manitoba  upon  the  life  of  the  plant  may  be  found  in  the 
Seventh  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  Fiscal  Year  ending  November  30th,  1914,  p.  14.     Cf.  p.  140, 
infra. 

42  For  example,  in  a  letter  to  the  Minister  of  Public  Works,  dated 
April  19,  1911,  the  Chairman  of  the  Telephone  Commission  said  that 
the  telephone  plant  "  should  have  an  annual  reserve  set  aside  to 


56        GOVERNMENT  TELEPHONES 

But  the  Government  refused  to  allow  the  Commis- 
sion to  set  aside  any  depreciation  reserve  to  meet  re- 
construction expenditure,  and  thus  forced  the  Com- 
mission to  adopt  the  unsound  and  hand-to-mouth 
policy  of  charging  reconstruction  expenses  each  year 
directly  against  current  revenue;  as  a  result,  during 
the  first  four  years  of  Government  operation  recon- 
struction expenses  were  included  with  maintenance 
expenses  in  the  telephone  accounts.  Therefore,  in 
recasting  the  accounts,  it  is  necessary  to  include  with 
each  year's  current  expenses  an  amount  equivalent  to 
6  per  cent,  of  the  cost  of  the  plant;  43  and  on  the 
other  hand,  it  is  necessary  to  exclude  from  each 
year's  current  expenses  the  expenses  of  the  recon- 
struction actually  effected  during  the  year,  as  expenses 
for  reconstruction  should  properly  be  met  from  de- 
preciation reserve.  In  regard  to  the  latter  process 
—  the  exclusion  of  actual  reconstruction  expenses 
from  current  expenses  —  unfortunately  during  each 
of  the  first  four  years  of  Government  operation 
(1908-1911  inclusive)  it  is  impossible  to  determine 

provide  for  its  replacement  of  at  least  6%,  assuming  it  is  to  earn  in- 
terest. All  authorities  agree  that  the  average  life  of  a  well  built 
telephone  plant  is  twelve  years,  or  an  annual  depreciation  at  the 
rate  of  8%." 

43  The  cost  of  the  plant,  as  used  in  this  work,  represents  each  year 
the  cost  at  the  end  of  the  preceding  year,  as  derived  from  the  an- 
nual accounts  of  the  Government  telephone  system  given  in  the 
Sessional  Papers.  All  intangible  items  and  all  current  expenses  im- 
properly charged  to  capital,  as  shown  by  an  appraisal  of  the  plant 
made  in  1915,  are  excluded.  Cf.  pp.  151-152,  infra. 


UNDER  FIRST  COMMISSION          57 

from  the  published  accounts  the  exact  amount  of  the 
actual  reconstruction  expenses,  owing  to  the  fact 
(mentioned  above)  that  the  expenditure  for  mainten- 
ance and  the  expenditure  for  reconstruction  were 
combined  into  one  item  of  "  Maintenance  "  each 
year  and  were  not  shown  separately.  However,  by 
assuming  each  year  that  the  portion  of  these  com- 
bined expenditures  (including  the  maintenance  ex- 
penses deducted  from  plant  account  as  explained 
above)  which  was  in  excess  of  a  reasonable  allow- 
ance for  maintenance  expenditure  represented  recon- 
struction expenditure,  an  approximation  of  actual 
reconstruction  expenses  may  be  obtained.  Accord- 
ingly, in  recasting  the  accounts  for  the  first  four 
years,  maintenance  has  been  assumed  to  have  re- 
quired each  year  an  amount  which  bore  the  same  re- 
lation to  the  cost  of  the  plant  as  did  the  amount  of 
the  maintenance  expenses  in  those  years  in  which 
maintenance  expenditure  is  shown  as  a  separate  item 
in  the  accounts;  and  the  balance  of  the  combined 
maintenance  and  reconstruction  expenditures  in  these 
four  years  has  therefore  been  excluded  from  current 
expenses  as  representing  reconstruction  expenditure. 
By  eliminating  the  deficiencies  in  the  accounting 
methods  employed  by  the  Government  and  by  recast- 
ing the  published  accounts  in  the  manner  described, 
the  financial  result  of  the  first  year  of  Government 
operation  appears  as  follows: 


5 8         GOVERNMENT  TELEPHONES 

Gross   Revenue    $656,487 

Expenses : 

Operation    $256,129* 

Maintenance   94,162 

Depreciation   149,860 

Total  Expenses   500,151 

Net  Earnings   156,336 

Interest   168,252 

Deficit $11,916 

*This  figure  is  necessarily  estimated,  as  operation  expenses  —  in 
j^o8  —  are  not  shown  separately  in  the  published  accounts.  Cf .  p. 
51,  supra.  The  figure  bears  the  same  relation  to  gross  revenue, 
however,  as  does  the  average  of  the  actual  figures  for  operation  ex- 
penses in  1909,  1910,  and  1911.  Allowance  has  been  made  for 
operation  expenses  incurred  in  1908,  but  not  included  in  the  tele- 
phone accounts  until  the  next  year. 

This  revision  of  the  accounts  eliminates  the  effect 
of  the  two  known  deficiencies  in  the  accounting 
practice  which  the  Government  forced  upon  the 
Telephone  Commission;  but  it  must  not  be  supposed 
that  these  were  the  only  deficiencies  in  the  telephone 
accounts.  An  inspection  of  the  books  would  doubt- 
less reveal  departures  from  sound  accounting  prin- 
ciples in  a  considerable  number  of  other  cases, — 
some  serious,  some  petty.  It  should  be  observed, 
however,  that  the  effect  of  all  deficiencies  in  the  ac- 
counts is  to  increase  the  book  profits  of  the  system: 
the  tendency  of  Government  bookkeeping  is  to  in- 
clude with  revenue  items  which  should  properly  be 
excluded  (such  as  revenue  received  during  the  year, 
but  not  earned  during  the  year)  and  to  exclude  from 
expenses  items  which  should  properly  be  included 


UNDER  FIRST  COMMISSION          59 

(such  as  the  value  of  work  done  free  of  charge  by 
other  Government  departments) .  Thus,  as  regards 
the  preceding  revision  of  the  accounts  (and  the  sub- 
sequent similar  revisions),  failure  to  make  allowance 
for  the  effect  of  unknown  deficiencies  in  the  accounts 
merely  decreases  the  losses  shown  and  therefore 
makes  the  results  conservative.  Moreover,  the  con- 
servatism of  the  results  as  stated  here  is  enhanced 
by  the  fact  that  in  such  revisions  of  the  accounts  no 
deduction  from  revenue  is  made  to  provide  for  the 
gradual  writing  off  of  intangible  capital,  although  it 
cannot  be  open  to  question  that  annual  provision  for 
writing  off  intangible  capital  should  have  been  made ; 
indeed,  the  necessity  for  the  gradual  extinction  of 
intangible  capital  was  later  officially  recognized.44 
It  is  clear  from  the  above  revision  of  the  accounts, 
then,  that  all  profits  which  had  formerly  been  earned 
by  the  Bell  Telephone  Company  —  over  and  above  a 
sum  equal  to  the  interest  charges  paid  by  the  Gov- 
ernment on  their  telephone  capital  —  were  entirely 
dissipated  during  the  very  first  year  of  Government 
operation.  Even  if  less  provision  against  deprecia- 
tion had  been  made,  this  real  result  would  not  have 
been  materially  affected  —  and  this  real  result  was 
produced  under  even  higher  rates  than  the  Bell  Com- 
pany had  charged ! 45 

44  Cf.  p.  154,  infra. 

45  Cf.  pp.  42  and  47,  supra.     Moreover,  the  Government  system 
is  exempt  from  practically  all  taxation,  whereas  the  Bell  Company 
paid  almost  $10,000  a  year  in  taxes  in  Winnipeg  alone  (The  Mani- 


60        GOVERNMENT  TELEPHONES 

On  March  9,  1909,  the  Report  of  the  Public  Ac- 
counts Committee  for  the  year  1908  was  brought 
before  the  Legislature.  The  Committee  had  made 
a  somewhat  detailed  inquiry  into  the  telephone  ac- 
counts and  had  confirmed  such  significant  facts  as 
that  the  telephone  revenue  for  the  year  had  included 
unearned  revenue  and  that  many  current  expenses 
had  been  charged  to  capital.  Nevertheless,  the 
Committee's  report  was  a  purely  formal  generaliza- 
tion containing  no  reference  to  details.46  But  the 
Opposition  was  unwilling  to  allow  the  occasion  to 
attack  the  Government's  accounts  to  go  by  default 
and  an  Opposition  member  of  the  Legislature  there- 
fore moved  the  adoption  of  an  amended  report 
which  stated  the  case  against  the  accounts  accurately. 
In  this  amendment  attention  was  called  to  the  in- 
clusion of  unearned  revenue  with  earned  revenue; 
to  the  existence  of  large  bank  overdrafts  incurred 
for  telephone  expenditures;  and  to  the  absence  of 
any  provision  against  depreciation.47  Needless  to 
say,  however,  this  amended  report  was  rejected  and 
the  original  colorless  report  adopted.48  Neverthe- 
less, the  proceedings  in  connection  with  this  report 

tola  Free  Press,  Winnipeg,  December  13,  1908,  and  December  24, 
1908).  This  exemption  from  taxation  is  a  factor  which  must  be 
borne  in  mind  throughout  the  consideration  of  the  financial  results 
of  the  Government  telephones. 

46  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session  1909, 

PP-  I54-5. 

47  Ibid.,  pp.  155-8. 
**lbid.,  p.  158. 


UNDER  FIRST  COMMISSION         61 

of  the  Public  Accounts  Committee  show  that  the  Op- 
position, for  political  ends,  early  adopted  every 
means  in  their  power  of  calling  the  Government  to 
account  for  deliberately  misleading  the  people  of  the 
Province  into  the  belief  that  the  administration  of 
the  telephone  system  had  been  financially  successful; 
and  although  the  evidence  as  to  telephones  taken  on 
oath  by  the  Public  Accounts  Committee  is  not  printed, 
it  has  already  been  seen  that  enough  material  of  an 
indisputable  character  remains  to  prove  that  the  Gov- 
ernment administration  of  the  telephones  in  Mani- 
toba exhibited -from  the  beginning  a  complete  disre- 
gard of  sound  principles  of  finance. 

A   MODERATE   RATE    REDUCTION   EFFECTED   BY   THE 
GOVERNMENT   FOR   POLITICAL   PURPOSES 

On  February  25,  1909,  a  few  days  after  the  pub- 
lication of  the  telephone  accounts,  the  Minister  of 
Public  Works,  speaking  before  the  Legislature,  very 
justly  complimented  the  Telephone  Commissioners 
upon  their  management  of  the  system,  for  there  can 
be  no  doubt  that  they  made  the  best  of  highly  un- 
favorable conditions  and  that,  so  far  as  they  were 
concerned,  the  system  was  generally  managed  effi- 
ciently and  economically;  the  deficiencies  in  manage- 
ment lay  altogether  outside  of  the  sphere  of  the  Com- 
mission. In  the  same  speech  the  Minister  stated 
that  the  real  "  surplus  "  for  the  first  year  of  opera- 
tion was  $232,501,  and  continued:  "  In  view  of  the 


62         GOVERNMENT  TELEPHONES 

magnificent  financial  results  as  shown  by  the  financial 
statement,  it  becomes  my  pleasant  duty  to  announce 
the  conclusions  reached  by  the  government  in  respect 
to  a  reduction  of  rates."  49  He  did  not  say  that  the 
Government  had  been  advised  by  the  Telephone 
Commission  that  the  telephone  accounts  showed  that 
reductions  could  be  made;  he  intimated  clearly  that 
the  reduction  of  rates  was  due  to  the  policy  of  the 
Government. 

The  Minister  of  Public  Works  then  announced  the 
new  rate  schedule,  which  applied  to  exchange  rates 
only,  long  distance  rates  remaining  unchanged.  The 
chief  provisions  of  the  new  schedule  were  as  fol- 
lows: 

a)  The  flat  (i.e.,  unlimited  service)  rate  for  in- 

dividual line,  business  service  in  the  cities 
($50  per  year  in  Winnipeg)  was  left  un- 
changed. 

b)  The  other  flat  rates  were  reduced  as  follows: 
Winnipeg. 

Individual  line,   residence:  existing  annual 
charge  of  $30  reduced  to  $25. 

2    Party    line,    residence :    existing    annual 

charge  of  $24  reduced  to  $18. 
Brandon  and  Portage  la  Prairie. 

Individual  line,  residence:  existing  annual 
charge  of  $25  reduced  to  $20. 

49  The  Winnipeg  Telegram,  February  26,  1909. 


UNDER  FIRST  COMMISSION          63 

2    Party    line,    residence :    existing    annual 

charge  of  $21  reduced  to  $15. 
Small. Towns. 

Individual   line,    business:    existing   annual 
charge  of  $24  reduced  to  $20. 

Individual  line,   residence:  existing  annual 

charge  of  $18  reduced  to  $15. 
Farmers'  Lines. 

Existing  annual  charge  of  $24  reduced  to 
$20. 

Existing  annual  charge  of  $30  reduced  to 

$25. 

c)  A  2  party  line,  business,  unlimited  service  rate 
was  introduced  in  the  cities;  and  a  meas- 
ured service  rate  for  individual  line  busi- 
ness and  residence  service  was  introduced 
in  the  cities  as  an  alternative  to  the  flat 
rates  for  such  service. 

While  the  introduction  of  the  measured  service 
rates  was  an  innovation  in  Manitoba,  nevertheless, 
since  the  flat  rates  were  retained  and  the  measured 
rates  were  merely  optional,  the  innovation  was  prac- 
tically unheeded  and  caused  no  comment.  The  new 
rates  were  to  go  into  force  on  April  i,  1909. 

The  new  schedule  was  in  effect ^a  political  scale 
devised  by  the  Government  for  the  purpose  of  pla- 
cating the  politically  most  influential  classes.  There 
can  be  no  doubt  as  to  its  source,  in  view  of  the  fol- 


64        GOVERNMENT  TELEPHONES 

lowing  extract  from  the  evidence  of  the  Chairman 
of  the  Telephone  Commission  before  the  Public  Ac- 
counts Committee  in  1910.  [The  Chairman,  when 
questioned  by  a  member  of  the  Committee  in  regard 
to  the  reduction  of  the  farmers'  rate  from  $24  to 
$20,  replied  as  follows: 

"  Q. —  Was  the  reduction  from  $24  to  $20  made 
by  the  commission? 

"  A. —  No,  we  put  it  in  effect,  but  it  was  a  reduc- 
tion made  by  the  Government. 

"  Q. —  Were  you  consulted  as  to  the  reduction 
being  made? 

u  A. —  Yes,  I  was  consulted. 

"  Q. —  And  did  you  advise  that  it  should  be  made  ? 

"  A. —  I  cannot  say  that  I  did." 
And  in  another  place : 

"  Q. —  And  you  are  sure  that  the  suggestion  of 
the  $20  rate  did  not  come  from  you? 

«  A.—  I  am  sure  of  that."  50 

No  comment  is  necessary  to  illuminate  this  testi- 
mony;51 it  is  also  self-evident  that  the  reductions 

50  Sessional  Papers.    Legislative  Assembly  of  Manitoba.    Session 
IQIO.    Appendix  A.    Evidence  Taken  before  the  Public  Accounts 
Committee  during  the  Session  of  1910,  p.  703. 

51  This  evidence,  however,  is  further  proof  of  the  situation  in  re- 
gard to  the  Telephone  Commission.    There  was  at  the  head  of  the 
Commission  an  absolutely  honest  and  upright  man  who  was  doing 
the  best  he  could  for  the  Province,  a  man  technically  trained  who 
knew  that  more  or  less  disastrous  failure  was  inevitable  unless  a 
change  of  policy  occurred.    On  the  other  side  there  was  the  Govern- 
ment,   merely    desirous    of    retaining    its    power    and    utilizing    the 
telephone  system  for  the  purpose  of  securing  party  advantages,  how- 
ever temporary  and  at  whatever  cost  to  the  Province. 


UNDER  FIRST  COMMISSION          65 

provided  by  the  new  schedule  were  insignificant  in 
comparison  with  the  pledge  that  rates  would  be 
"  cut  in  two." 

Although  the  results  of  the  first  year's  operation 
of  the  Government  telephone  system  gave  little  sat- 
isfaction in  Manitoba,  notwithstanding  the  "  sur- 
plus "  resulting  from  the  Government's  manipula- 
tion of  the  accounts  and  notwithstanding  the  reduc- 
tion in  rates,  some  of  the  politicians  in  the  Dominion 
Parliament  at  Ottawa  attempted  to  make  political 
capital  out  of  the  alleged  success  of  the  Manitoba 
Telephones.  In  the  Dominion  Parliament  on 
March  i,  1909,  one  member  moved  the  adoption  of 
a  resolution  that  "  it  is  the  immediate  duty  of  the 
government  to  initiate  and  carry  out  such  measures 
as  will  .  .  .  secure  to  the  people  of  Canada,  other 
than  the  people  of  Saskatchewan,  Alberta  and  Mani- 
toba, a  rate  of  service  at  least  as  moderate  as  ... 
prevails  in  countries  where  a  national  telephone  serv- 
ice is  maintained."  52  In  support  of  his  motion  the 
member  referred  especially  to  the  case  of  Manitoba, 
and  spoke  of  the  Government  Telephones  there  as 
having  yielded  "a  surplus  of  $380,000  for  the 
eleven  months  and  a  half  in  which  they  have  been 
operating." 53  But  on  being  questioned  on  this 
point,  the  proposer  of  the  resolution  admitted  that 

52  Official  Report  of  the  Debates  of  the  House  of  Commons  of  the 
Dominion  of  Canada.  First  Session  —  Eleventh  Parliament.  Vol. 
LXXXIX.  Column  1761. 

5ZIbid.,  Column  1769. 


66         GOVERNMENT  TELEPHONES 

he  had  not  analyzed  this  surplus,  while  another 
member  of  Parliament  showed  that  the  actual  situa- 
tion in  Manitoba  was  well  understood  by  pointing 
out  that  the  Government  service  had  produced  an 
actual  deficit  and  continuing:  "  I  am  aware  that  the 
telephone  system  is  operated  by  the  commission. 
But  I  am  also  aware  that,  so  far  as  policy  is  con- 
cerned, the  commission  is  under  the  control  of  the 
government,  and  the  revenues  received  by  the  com- 
mission are  paid  over  to  the  provincial  treasury. 
The  rates  are  certainly  controlled  by  the  govern- 
ment, and  not  by  the  commission  "  since  "  there  was 
no  justification  for  that  reduction,  there  were  no 
business  reasons  for  it."  54 

So  much  for  the  events  connected  with  the  first 
year  of  the  Manitoba  Government  telephones. 

LABOR   DIFFICULTIES 

The  second  year  of  Government  operation  (1909) 
had  scarcely  begun  before  the  Telephone  Commis- 
sion encountered  some  labor  difficulties.  A  desire 
for  economy,  as  well  as  the  necessity  for  speed  to 
meet  the  conditions  imposed  by  the  Government  in 
the  reduction  of  the  rates  for  rural  telephones  and 
in  the  policy  of  rapid  construction,  induced  the  Tele- 
phone Commission  —  in  April,  1909  —  to  increase 
the  working  day  of  its  line  employes  from  nine  to 
ten  hours  during  the  summer  season.  Although  it 

54  Ibid.,  Column  1780  et  seq. 


UNDER  FIRST  COMMISSION         67 

had  been  the  accepted  practice  of  the  Bell  Telephone 
Company  to  have  a  ten-hour  day  during  the  summer 
season,  those  workmen  who  were  paid  weekly  or 
monthly  wages  —  about  60%  of  the  total  number 
employed  —  immediately  resented  the  increase  when 
it  was  adopted  by  the  Commission.  The  Trades  and 
Labor  Council  of  Winnipeg  denounced  the  Govern- 
ment. "  Such  action,"  one  of  the  members  said, 
"  would  be  borne  in  mind  in  the  next  election."  55 
Since,  however,  the  Government  were  being  kept  in 
power  by  the  vote  of  the  farmer  and  not  by  the  vote 
of  the  urban  artisan,  the  threat  carried  no  weight. 
Still,  the  fact  that  an  administrative  change  led  to 
a  political  attack  illustrates  one  of  the  difficulties 
encountered  by  public  authorities  which  engage  in 
industrial  enterprises.56  It  is  also  worthy  of  note 
that  in  November,  1909,  as  a  protest  against  the 
discipline  enforced  by  the  Commission,  the  exchange 
operators  in  Winnipeg  threatened  to  strike.57 

On  September  i,  1909,  the  Telephone  Commis- 
sion effected  a  reorganization  of  the  administration 
of  the  system,  introducing  what  is  known  as  "  func- 
tional "  organization.  The  entire  business  was  di- 

55  The  Manitoba  Free  Press,  Winnipeg,  April  16,  1909. 

5ftThat  continued  employment  in  the  telephone  service  depended 
upon  political  considerations  is  evident  from  the  fact  that,  upon  his 
nomination  as  the  Opposition  candidate  for  Killarney  (Manitoba) 
at  the  next  election,  the  long  distance  agent  of  the  Government  tele- 
phones at  Ninga  was  dismissed.  The  Manitoba  Free  Press,  Winni- 
peg, July  7,  1909. 

67  Cf.  the  Manitoba  Free  Press,  Winnipeg,  November  6,  1909. 


68         GOVERNMENT  TELEPHONES 

vided  into  three  departments,  viz.,  commercial, 
traffic  and  plant.  The  only  territorial  distinction 
was  between  Winnipeg  and  the  rest  of  the  Province. 
At  the  head  of  each  department  there  was  placed  a 
superintendent,  reporting  to  the  Commission.  In 
speaking  of  the  change,  Mr.  W.  H.  Hayes,  one 
of  the  Telephone  Commissioners,  said:  "  All  tele- 
phone companies  are  gradually  working  into  this 
new  form  of  organization;  it  has  proved  to  be  far 
superior  to  the  old  method  in  facilitating  the  han- 
dling of  the  business.  It  arranges  for  a  more  de- 
tailed supervision  of  every  locality  on  the  system."  58 
In  view  of  the  generally  recognized  efficiency  of  the 
"  functional "  type  of  organization,  its  early  intro- 
duction reflects  great  credit  upon  the  Telephone 
Commission. 

DEFICIT  IN   1909  CONCEALED  BY  THE  ACCOUNTING 
METHODS  PRESCRIBED  BY  THE  GOVERNMENT 

As  a  result  of  the  deficiencies  in  the  accounting 
methods  prescribed  by  the  Government,  the  accounts 
of  the  telephone  system  for  1909,  printed  in  the 
brief  annual  report  of  the  Telephone  Commission- 
ers,59 gave  no  indication  of  the  real  financial  out- 
come of  the  service  during  the  year.  As  in  1908, 
maintenance  expenses  were  charged  to  capital  dur- 

58  The  Bulletin,  Winnipeg,  August  21,  1909. 

59  Report  of  the  Commissioners  of  Government  Telephones  for  the 
year  1909.     Sessional  paper  No.  20.    Sessional  Papers.    Legislative 
Assembly  of  Manitoba.    Session  1910,  pp.  624-627. 


UNDER  FIRST  COMMISSION          69 

ing  the  year  and  no  reserve  against  depreciation  was 
set  aside;  moreover,  the  Commissioners  were  not 
able  to  include  in  the  accounts  the  interest  paid  dur- 
ing the  year  upon  the  telephone  capital,  the  payment 
of  such  interest  charges  having  been  specifically  re- 
served to  the  Provincial  Treasurer.60  According  to 
the  accounts  in  the  report  of  the  Telephone  Com- 
missioners, there  was  an  "  excess  of  revenue  over 
expenditure"  for  the  year  of  $271,797;  but  when 
the  effect  of  the  known  deficiencies  in  accounting 
methods  is  eliminated  in  accordance  with  the  pro- 
cedure already  described,01  and  when  the  interest 
upon  the  telephone  capital  62  has  been  deducted,  the 
results  of  the  year's  operations  appear  as  follows: 

Gross  Revenue $757,143 

Expenses : 

Operation    $309,088 

Maintenance    107,002* 

Depreciation 170,294! 

Total  Expenses    586,384 

Net   Earnings 170,759 

Interest i86,35263 

Deficit $15,593 

*This  figure  bears  the  same  relation  to  plant  cost  as  do  main- 
tenance expenses  in  those  years  in  which  maintenance  expenditure 
is  shown  as  a  separate  item  in  the  accounts. 

t  Equivalent  to  6%  of  plant  cost  at  the  end  of  the  preceding  year. 

60  Cf.  p.  72,  infra. 

61  Cf.  pp.  54-57,  supra. 

62  Until  1913  the  annual  interest  charges  upon  telephone  capital 
are  shown  only  in  the  Public  Accounts  (i.e.  the  annual  reports  of  the 
Provincial  Treasurer)  in  the  Sessional  Papers. 

63  Sessional  Papers.    Legislative  Assembly  of  Manitoba.    Session 
jgio,  p.  52. 


yo        GOVERNMENT  TELEPHONES 

In  other  words,  the  Government's  accounting 
methods  concealed  a  real  deficit  which,  although  it 
was  equal  to  only  2  per  cent,  of  the  gross  revenue, 
was  nevertheless  greater  than  the  corresponding 
deficit  in  1908;  while  the  recurrence  of  a  deficit  was 
an  ominous  sign.  Moreover,  in  thus  creating  real 
deficits,  the  Government  was  of  course  compromis- 
ing the  public  credit,  a  fact  which  an  analysis  of  the 
Public  Accounts  of  the  Province  will  show.  But 
even  if  it  had  been  justifiable,  as  good  public  policy 
or  as  conducive  to  future  advantages,  to  incur  a  loss 
in  the  telephone  enterprise,  it  would  have  been  only 
proper  for  the  Government  frankly  to  have  stated 
such  losses,  instead  of  endeavoring  to  conceal  them 
by  means  of  lax  and  not  entirely  honest  accounting 
methods.  Unfortunately,  however,  the  Manitoba 
Government  from  the  beginning  deliberately  refused 
to  look  facts  in  the  face;  they  preferred  to  deceive 
the  public  —  and  probably  themselves  —  by  creating 
the  illusion  that  their  venture  into  commercial  busi- 
ness was  a  financial  success.  No  illusion  could  have 
been  greater. 

When  examined  before  the  Public  Accounts  Com- 
mittee in  regard  to  the  telephone  accounts,  the  Chair- 
man of  the  Telephone  Commission  steadily  refused 
to  admit  responsibility  for  the  manner  in  which  the 
accounts  had  been  presented.  He  said  that  he  was 
obliged  to  hand  over  to  the  Government  all  sums 
received  by  him,  and  to  draw  from  the  Government, 


UNDER  FIRST  COMMISSION          71 

or  from  the  bank  on  the  credit  of  the  Government, 
all  sums  required  by  the  Commission  for  the  con- 
duct of  its  business.  The  following  evidence  of  the 
Chairman  before  the  Committee  shows  conclusively 
that  the  responsibility  lay  entirely  with  the  Govern- 
ment: 

"  Q. —  Has  the  Commission,  within  the  years  that 
they  have  been  operating  the  telephone  system, 
set  apart  any  sum  whatever  for  sinking  fund  pur- 
poses? 

"  A. —  We  have  nothing  to  do  with  that. 

"  Q. —  Has  the  Commission  set  anything  apart 
for  that? 

"  A. —  We  pay  every  cent  we  get  to  the  Provincial 
Treasurer  and  don't  set  apart  anything. 

"  Q. —  Then  you  can  answer  the  question  nega- 
tively, the  Commission  has  set  apart  no  sum  what- 
ever for  sinking  fund  purposes  out  of  the  earnings 
of  these  two  years? 

"  A. —  No,  we  have  not. 

"  Q. —  Has  your  opinion  ever  been  asked  upon 
that,  whether  it  would  not  be  a  good  business  to  do 
so? 

"  A.—  No. 

"  Q. —  That  is  left  entirely  to  the  Government? 

"  A. —  Yes,  that  is  left  entirely  to  the  Govern- 
ment. 

"  Q. —  Has  the  Commission  set  apart  or  recom- 
mended the  setting  apart  of  any  sum  for  deprecia- 


72         GOVERNMENT  TELEPHONES 

tion  or  a  contingency  account  or  anything  of  that 
kind? 

"  A. —  Well,  the  same  answer  applies  to  that 
question.  .  .  . 

UQ. —  What  profit  did  the  Government  tele- 
phones earn  in  1909,  do  you  remember? 

"  A. —  We  do  not  deal  with  the  matter  of  interT 
est  on  debentures  at  all;  we  remitted  some  $775,000 
to  the  Provincial  Treasurer,  and  have  received  from 
him  $485,000. 

u  Q. —  Then  the  Commission,  as  such,  does  not 
know  what  amounts  were  paid  out  for  interest  on 
debentures? 

"A.—  No. 

"  Q. —  Then  the  Commission,  as  such,  is  unable 
to  show  by  their  statement  at  what  profit  or  loss  the 
business  is  being  conducted? 

"  A. —  We  can  show  the  difference  between  the 
actual  cost  of  operating  and  maintenance,  and  the 
amount  of  revenue. 

"  Q. —  And  that  is  what  you  purport  to  show? 

"  A. —  That  is  all  we  can  show."  64 

In  regard  to  rates,  another  passage  from  the  evi- 
dence of  the  Chairman  of  the  Telephone  Commis- 
sion, referring  to  the  reduction  in  rates,  is  signifi- 
cant: 

64  Sessional  Papers.  Legislative  Assembly  of  Manitoba.  Session 
IQIO.  Appendix  A.  Evidence  Taken  before  the  Public  Accounts 
Committee  during  the  Session  of  IQIO,  pp.  706-7. 


UNDER  FIRST  COMMISSION          73 

"  Q. —  As  far  as  the  farmers'  rates  are  concerned, 
I  believe  your  view  was  that  $20  (i.e.,  the  reduced 
rate)  was  too  near  the  cost  without  leaving  any- 
thing for  profit? 

"  A.—  That  is  right. 

"  Q. —  You  never  suggested  that  the  farmer 
should  get  the  benefit  of  anything  that  was  coming 
in  that  direction? 

"  A. —  Well,  the  recommendation  came  from  the 
Government  to  reduce  the  rates  on  the  rural  lines."  65 

And  that  the  Government  fully  intended  to  take 
the  credit  with  the  farmer,  is  shown  by  the  follow- 
ing passage: 

"  Question  (by  Dr.  Armstrong,  a  member  of  the 
Committee). —  Have  any  suggestions  been  made  by 
the  Commission  to  the  Government  to  restore  the 
price  back  to  $24  a  year  for  farmers'  telephones? 

"  A.—  I  would  like  to." 

The  Attorney-General  here  interposed:  "No 
doubt  he  would  like  to,  and  no  doubt  Dr.  Arm- 
strong would  like  to  charge  the  farmer  more,  but 
we  do  not  propose  to  do  so."  66 

These  extracts  from  the  evidence  given  on  oath 
by  the  Chairman  of  the  Commission  in  regard  to 
the  telephone  accounts  and  rates  are  further  proof 
of  the  pervasive  character  of  the  Government  con- 

65  Ibid.,  p.  714. 

66  Sessional  Papers.    Legislative  Assembly  of  Manitoba.    Session 
igio.    Appendix  A.    Evidence   Taken  before  the  Public  Accounts 
Committee  during  the  Session  of  1910,  p.  712. 


74        GOVERNMENT  TELEPHONES 

trol  of  the  Telephone  Commission.  They  show 
that  the  Commission  had  in  effect  to  do  what  it  was 
told  to  do  by  the  Government.  It  was  forced 
against  its  desire  to  reduce  the  rates  on  rural  tele- 
phones; the  mere  suggestion  that  these  rates  should 
be  increased  was  met  with  a  contemptuous  negative 
by  the  Attorney-General. 

When  the  Report  of  this  Public  Accounts  Com- 
mittee was  presented  to  the  Legislature  on  March 
1 6,  1910,  an  Opposition  member  moved  that  the 
Report  be  referred  back  to  the  Committee  for 
amendment  in  order  to  insert,  among  others,  the 
following  paragraphs : 67 

"  That  the  evidence  of  the  Provincial  Auditor 
shows  that  the  trust  accounts  of  the  Province  are 
not  audited  by  him."  (The  funds  which  are  appro- 
priated for  telephone  construction  purposes  consti- 
tute trust  funds.  Large  sums  had  therefore  been 
disbursed  by  the  Government  officials  without  ef- 
fective audit.) 

"That,  since  the  first  day  of  May,  1909,  the 
Telephone  accounts  have  not  been  audited  by  the 
Provincial  Auditor,  the  same  having  been  removed 
from  his  jurisdiction  by  the  action  of  the  Executive." 
(The  result  of  this  action  of  the  Government  was 
an  inadequate  audit  which  gave  rise  to  some  of  the 
abuses  which  were  revealed  later.) 

67  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session 
ipio,  p.  174- 


UNDER  FIRST  COMMISSION          75 

On  a  party  vote  these  proposed  amendments  to 
the  Report  were  rejected.68 

CONSTRUCTION    POLICY    OF    THE    GOVERNMENT    IN- 
ECONOMICAL  AND  MARKED  BY  POLITICAL  ABUSES 

The  year  1910  was  the  third  year  of  the  opera- 
tion of  the  Government  telephones  and,  in  methods 
and  results,  it  was  not  distinguished  in  any  essential 
from  its  two  predecessors.  At  the  end  of  the  year 
the  system  embraced  29,748  telephones,  distributed 
as  follows : 

Business  telephones 11,181 

Residence  telephones 1 1,537 

Rural  telephones 7*030 

Total  29,74869 

As  the  number  of  telephones  at  the  time  of  the 
Government's  acquisition  of  the  system  was  14,042, 70 
the  number  of  telephones  had  been  doubled  in  the 
three  years  of  Government  operation.  In  spite  of 
the  fact  that  this  increase  was  secured  at  an  exces- 
sive cost  to  the  Province,  and  although  there  was  no 
real  economic  demand  for  some  of  the  extensions 
which  had  been  effected,  the  growth  of  the  service 

68  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session  1910, 
p.  175. 

69  Report  of  the  Commissioners  of  Manitoba  Government  Tele- 
phones  for   the   year   ending   jist    of   December,   igio.     Sessional 
Paper  No.  14.     Sessional  Papers.    Legislative  Assembly  of  Mani- 
toba.   Session  ign,  p.  582. 

70  Cf.  p.  28,  supra. 


76        GOVERNMENT  TELEPHONES 

has  certainly  been  the  most  unobjectionable  feature 
of  the  history  of  the  system  under  Government  con- 
trol. However,  as  will  be  pointed  out  in  detail 
later,71  it  must  not  be  assumed  that  this  growth 
was  due  to  Government  control,  for  no  such  assump- 
tion can  have  any  basis  in  fact.  Incidentally,  it  will 
be  recalled  that  the  number  of  telephones  was  doub- 
led during  the  last  two  years  of  Bell  management 
and  that  the  Bell  Company  had  anticipated  a  much 
larger  growth  in  the  following  years;  indeed,  the 
large  amount  of  advance  construction  at  the  time 
of  the  acquisition  of  the  Bell  system  was  put  for- 
ward by  the  Government  as  one  explanation  of  the 
apparently  high  price  paid  for  the  plant.72 

Moreover,  the  Manitoba  Free  Press  reported  an 
example  of  the  political  abuses  which  were  rampant 
even  in  the  matter  of  extensions.  Although  it  is  im- 
possible at  this  date  to  verify  the  incident  which  the 
Free  Press  relates,  yet  it  seems  so  probable  that  it 
is  given  here : 

"  [The  people  of  Woodridge  and  the  region  sur- 
rounding that  station  .  .  .  are  suffering  from  the 
sort  of  hope  deferred  which  maketh  the  heart 
sick,  in  the  matter  of  securing  telephone  connec- 
tions. 

"  In  the  closing  days  of  last  June,  just  before  the 
recent  provincial  general  elections,  several  carloads 
of  poles  were  unloaded  at  Woodridge,  and  it  was 

71  Cf.  pp.  146-148,  infra.  72  Cf.  p.  30,  supra. 


UNDER  FIRST  COMMISSION          77 

announced  that  the  work  of  connecting  up  Wood- 
ridge  with  the  provincial  government's  long  distance 
telephone  system  would  be  gone  on  with  immediately 
after  the  elections. 

"  A  number  of  voters  were  engaged,  at  the  rate 
of  $6  per  day  per  man  and  team,  to  do  the  work  of 
taking  the  poles  out  to  the  point  to  which  it  was 
stated  the  trunk  telephone  line  would  be  completed 
in  a  week  or  two. 

"  The  Woodridge  district  is  partly  in  the  con- 
stituency of  Emerson  and  partly  in  the  constituency 
of  Carillon.  It  is  a  predominantly  Opposition  dis- 
trict. 

;<  Within  two  weeks  after  the  elections,  a  train 
of  empty  cars  came  along  and  gathered  up  all  the 
telephone  poles  and  brought  them  to  Winnipeg 
again."  73 

The  Free  Press  refers  editorially  to  the  incident 
as  a  case  of  "  fishing  for  votes  with  telephone 
poles."  74 

In  1910,  the  Government's  policy  of  rapid  con- 
struction did  not  take  into  account  the  state  of  the 
labor  market,  with  the  result  that  the  Commission 
found  it  impossible  to  secure  an  adequate  supply  of 
experienced  men  fully  to  carry  out  that  policy.  In 
consequence,  a  number  of  rural  and  long  distance 
lines  had  to  be  abandoned  in  the  course  of  construc- 

73  The  Manitoba  Free  Press,  Winnipeg,  October  8,  1910. 


78         GOVERNMENT  TELEPHONES 

tion  and  were  unable  to  be  completed  until  the  sea- 
son of  191 1.75 

FINANCIAL  RESULT  IN    1910  AGAIN  AN  APPARENT 
PROFIT  BUT  A  REAL  LOSS 

The  telephone  accounts  for  1910  were  again  prac- 
tically meaningless.  Although  without  doubt  fewer 
maintenance  expenses  were  charged  to  capital  in  1910 
than  had  been  so  charged  in  1908  and  1909,  never- 
theless the  amount  of  maintenance  improperly 
charged  to  capital  was  considerable  even  in  1910. 
According  to  the  accounts  of  the  Telephone  Com- 
mission there  was  an  excess  of  revenue  over  ex- 
penditure of  about  $3 50,000  ;76  but  the  Commis- 
sion was  still  without  authority  to  set  aside  any 
reserve  against  depreciation,  and  their  accounts  did 
not  —  and  could  not  —  include  the  interest  paid 
upon  the  telephone  capital.  If  (i)  all  maintenance 
expenses  had  been  properly  charged  against  revenue, 
if  (2)  a  reserve  against  depreciation  had  been  in- 
cluded in  current  expenses  and  expenditures  for  re- 
construction had  been  excluded  from  current  ex- 
penses, and  if  (3)  interest  on  telephone  capital  had 
been  shown,  the  accounts  for  1910  would  have  stood 
as  follows : 77 

75  Report  of  the  Commissioners  of  Manitoba  Government  Tele- 
phones  for   the  year   ending  sist   of   December,   1910.     Sessional 
Paper  No.   14.     Sessional  Papers.    Legislative  Assembly  of  Mani- 
toba.   Session  1911,  p.  583. 

76  Ibid,  pp.  587-590. 

77  For  details  of  this  revision  of  the  accounts,  see  pp.  54-57,  supra. 


UNDER  FIRST  COMMISSION          79 

Gross  Revenue $982,636 

Expenses : 

Operation    $418,999 

Maintenance   I35>3i6* 

Depreciation   2i5,357t 

Total  Expenses 769,672 

Net  Earnings 212,964 

Interest  278,500^ 

Deficit $65,536 

*This  figure  bears  the  same  relation  to  plant  cost  as  do  main- 
tenance expenses  in  those  years  in  which  maintenance  expenditure 
is  shown  as  a  separate  item  in  the  accounts. 

t  Equivalent  to  6%  of  plant  cost  at  the  end  of  the  preceding  year. 

Behind  apparent  profits,  therefore,  there  was  a 
real  loss  during  the  year  of  $65,000.  Moreover,  it 
is  obvious  that  in  the  absence  of  a  depreciation  re- 
serve even  apparent  profits  (after  the  deduction  of 
the  proper  interest  charges)  could  be  maintained 
only  so  long  as  the  actual  reconstruction  expenses 
each  year  were  considerably  less  than  the  annual 
amount  which  would  have  been  required  to  provide 
an  adequate  reserve  against  depreciation  —  either 
naturally  less  because  of  the  comparative  newness 
of  the  greater  part  of  the  plant  or  artificially  less 
because  of  neglect  of  necessary  reconstruction  and 
failure  to  keep  the  plant  up  to  standard.  For  three 
years  the  Government  had  succeeded  in  concealing 

78  Sessional  Papers.  Legislative  Assembly  of  Manitoba.  Session 
IQII,  p.  57.  The  interest  accounts  for  the  year  1910  are  very  ob- 
scure, but  a  thorough  study  of  all  factors  indicates  that  $278,500  is 
the  amount  of  interest  properly  chargeable  to  telephone  revenue 
for  the  year. 


8o        GOVERNMENT  TELEPHONES 

the  truth,  but  in  1911,  the  fourth  year  of  operation, 
the  bubble  of  fictitious  profits  burst. 

When,  after  three  years,  the  Government  contin- 
ued to  show  no  sign  of  adopting,  or  allowing  the 
adoption  of,  any  sort  of  commercial  accounting,  the 
Telephone  Commissioners  naturally  became  very  un- 
easy. They  were  well  aware  that  the  surpluses 
which  the  Government  had  announced  were  wholly 
fictitious  and  that  the  accumulation  of  real  deficits 
must  eventually  be  disclosed,  involving  the  Commis- 
sion as  well  as  the  Government  in  the  discredit  con- 
sequent upon  the  disclosure.  The  fact  that  the  Gov- 
ernment were  primarily  responsible  would  not  save 
the  Commission.  It  was  necessary  that  some  dras- 
tic measure  be  adopted  in  order  to  bring  the  true 
state  of  affairs  openly  before  the  public  so  that  the 
Government  would  be  forced  to  take  remedial  ac- 
tion. No  mere  representations  to  the  Government 
would  have  sufficed;  the  members  of  the  Govern- 
ment had  shown  a  persistent  disregard  of  the  facts 
—  they  would  not  even  read  the  reports  submitted 
to  them  from  time  to  time  by  the  Telephone  Com- 
mission. The  plain  fact  is  that  the  members  of  the 
Government  were  wholly  occupied  in  the  petty  tech- 
nique of  party  political  management,  with  the  sole 
purpose  of  keeping  themselves  in  power;  they  were 
at  once  unable  and  unwilling  to  devote  themselves 
to  the  task  of  comprehending  the  intricacies  of  the 
business  the  control  of  which  they  had,  for  political 


UNDER  FIRST  COMMISSION          81 

purposes,  assumed.  Even  at  that  late  date,  the 
Government  might  have  greatly  ameliorated  the  sit- 
uation by  frankly  confessing  that  they  had  made 
three  great  mistakes,  viz.,  the  unnecessary  and  in- 
economical  haste  with  which  construction,  especially 
of  rural  lines,  had  been  pushed,  the  failure  to  provide 
a  reserve  against  depreciation,  and  the  reduction  of 
the  telephone  rates.  But  such  a  confession,  being 
politically  inexpedient,  was  not  made. 

FICTITIOUS  PROFITS  DISAPPEAR  IN  191 1 ;  AN  AGGRE- 
GATE LOSS  OF  OVER  $3OO,OOO 

(The  Telephone  Commissioners  could  not  go  upon 
the  public  platform  and  denounce  the  Government 
for  maladministration  of  the  telephone  finances,  nor 
could  they  utilize  the  press  for  purposes  of  propa- 
ganda. There  was,  however,  open  to  the  Commis- 
sion one  course  which  would  inevitably  force  action 
—  and  this  course  the  Commission  took.  What 
they  did  was  to  expend  in  1911  what  they  conceived 
to  be  necessary  to  bring  the  plant  fully  or  nearly 
up  to  a  reasonable  standard,  and  to  charge  all  main- 
tenance and  reconstruction  expenses  against  rev- 
enue.79 No  methods  of  bookkeeping  could  conceal 
the  inevitable  deficit  which  resulted  —  and  the  Gov- 

79  According  to  the  annual  reports  of  the  Telephone  Commis- 
sioners, maintenance  and  reconstruction  expenses  amounted  to 
$282,000  (including  maintenance  expenses  improperly  charged  to 
capital)  in  1910  and  to  $500,000  in  1911.  Sessional  Papers.  Legis- 
lative Assembly  of  Manitoba.  Session  1911,  p.  589;  Session  1912, 
P-  534- 


82        GOVERNMENT  TELEPHONES 

ernment  were  forced  into  a  position  of  either  meet- 
ing this  deficit  out  of  the  general  revenue  of  the 
Province  or  permitting  an  increase  in  rates;  while 
at  the  same  time  deference  to  public  opinion  obliged 
the  Government  to  abandon  their  obstinate  refusal 
to  provide  a  depreciation  reserve.  Thus,  by  its  ac- 
tion, the  Commission  really  rendered  a  great  serv- 
ice to  the  Province,  but  a  service  which  eventually 
proved  to  be  self-sacrifice,  for  the  Government  at 
once  began  to  hunt  for  a  scapegoat  upon  whom  their 
own  sins  might  be  cast. 

When  the  telephone  accounts  for  1911  were  pub- 
lished,80 they  showed  that,  after  the  deduction  of  in- 
terest charges,81  there  was  a  deficit  of  $153,000  on 
the  year's  operations.  During  the  year  all  current 
expenses  were  charged  against  revenue;82  but  no 
reserve  against  depreciation  was  set  aside.  Upon 
recasting  the  accounts  so  as  to  include  a  depreciation 
charge  and  to  exclude  reconstruction  expenses,  the 
real  deficit  is  seen  to  be  even  greater;  for  the  plant 
account  had  greatly  increased  during  1910  and  a 
correspondingly  larger  depreciation  charge  was 
properly  required.  The  recast  accounts  follow: 

80  Fourth    Annual   Report    of    the    Commissioners    of    Manitoba 
Government  Telephones,  IQII.     Sessional  Paper  No.  25.    Sessional 
Papers.    Legislative    Assembly    of    Manitoba.    Session    1912,    pp. 
534-536. 

81  Sessional  Papers.    Legislative  Assembly  of  Manitoba.    Session 
1912,  p.  60. 

82  So  far  as  is  known,  all  current  expenses  have  been  charged 
against  revenue  in  each  year  subsequent  to  1910.     Cf.  p.  54,  supra. 


UNDER  FIRST  COMMISSION         83 

Gross  Revenue   $1,280,633 

Expenses : 

Operation    $571,916 

Maintenance    218,618* 

Depreciation    347>932t 

Total  Expenses ;  1,138,466 

Net  Earnings 142,167 

Interest    36i,35<>83 

Deficit    $219,183 

*This  figure  bears  the  same  relation  to  plant  cost  as  do  main- 
tenance expenses  in  those  years  in  which  maintenance  expenditure 
is  shown  as  a  separate  item  in  the  accounts. 

t  Equivalent  to  6%  of  plant  cost  at  the  end  of  the  preceding  year. 

Inasmuch  as  care  has  been  taken  to  understate, 
rather  than  exaggerate,  these  real  deficits,  there  can 
be  no  doubt  that  the  losses  during  the  first  four  years 
of  Government  ownership  and  operation  exceeded 
three  hundred  thousand  dollars! 

GOVERNMENT  POLICIES  RESULT  IN  EXTRAVAGANCE, 
INEFFICIENCY  AND  DISCRIMINATION  IN  VIO- 
LATION OF   PROMISES 

Perhaps  it  might  be  well  to  review  briefly  the  chief 
specific  causes  of  this  financial  debacle : 

( i )  The  Government's  policy  of  rapid  construc- 
tion, which  was  adopted  without  regard  to  the  abil- 
ity of  the  telephone  organization  to  carry  it  out  and 
was  continued  in  the  face  of  unfavorable  labor  con- 
ditions, forced  the  Telephone  Commission  to  employ 

83  Sessional  Papers.  Legislative  Assembly  of  Manitoba.  Session 
1912,  p.  60. 


84        GOVERNMENT  TELEPHONES 

men  and  to  keep  men  on  the  pay-rolls  who  would  not 
have  been  accepted  or  retained  under  normal  condi- 
tions.84 

(2)  The   Government's   requirement   that  rural 
extensions  be  made  in  excess  of  the  real  demand 
therefor,  also  necessitated  the  construction  of  lines 
with  one  subscriber  per  mile  instead  of  with  an  ade- 
quate number  of  subscribers  per  mile.85 

(3)  The  Government  compelled  the  Commission 
to  transform  toll  offices  into  exchanges  before  the 
volume  of  business  (actual  or  potential)  warranted 
it;  and  the  Government  obliged  the  Commission  to 
provide  night  and  day  service  at  small  exchanges 
where  day  service  only  would  have  sufficed.     When 
requested  to  do  so  by  sufficiently  influential  persons 
the  Commission  was  also  forced  to  give  free  serv- 
ice between  exchanges.86 

(4)  Not  only  did  the  Government  interfere  in 
many  subtle  ways  with  the  conduct  of  the  telephone 
business  and  not  only  did  the  members  of  the  Pro- 
vincial Legislature  of  both  parties  exert  influence 
upon  the  Commission  to  procure  favors  for  their 
friends,  but  the  people  themselves  also  utilized  these 
and  other  persons  for  the  purpose  of  obtaining  con- 
cessions through  political  pressure.87 

(5)  The  people  also  took  advantage  of  the  Com- 

84  Cf.  pp.  43  and  44,  supra. 

85  Cf.  pp.  38-39,  supra. 

86  Cf.  pp.  39  and  43-44,  supra. 

87  Cf.  pp.  39-40,  44-45,  50  and  67,  supra. 


UNDER  FIRST  COMMISSION          85 

mission  in  almost  every  possible  way.  One  result 
was  that  the  estimated  cost  of  construction  of  line 
plant  was  nearly  always  exceeded.  In  November, 
1911,  the  Chairman  of  the  Commission  stated: 
"  Every  mile  of  rural  telephone  lines  which  was  esti- 
mated would  cost  us  $150  four  years  ago,  we  have 
found  by  actual  experience  now  costs  us  $200  ";88 
in  some  cases  the  actual  cost  exceeded  the  estimated 
cost  by  over  100  per  cent.  A  large  part  of  this  ex- 
cess must  be  attributed  to  the  extortionate  charges 
of  hotel-keepers,  liverymen,  etc. ;  such  persons  habit- 
ually charged  the  Commission  much  higher  prices 
than  they  charged  other  customers,  and  yet  the  Com- 
mission was  bound  to  employ  them  either  because 
they  had  a  local  monopoly  or  because  they  were  sup- 
porters of  the  Government  and  were  able  to  bring 
influence  to  bear  to  have  their  bills  approved.  In 
a  memorandum,  dated  March  25,  1912,  Mr.  Horan 
wrote  to  the  Chairman  of  the  Commission:  "It 
should  be  brought  out  in  relief  that  not  only  have 
we  had  to  contend  with  the  fact  that  politics  came 
into  the  question  so  much,  but  apparently  a  large  per- 
centage of  hotel-keepers,  storekeepers,  and  livery- 
men have  been  hand  and  glove  with  our  men  — 
foremen  and  others  —  in  cheating  the  Government. 
...  It  is  of  course  understood  that  any  remarks 
or  suggestions  I  have  made  regarding  the  entry  of 

88  Interview   reported   in  the  Manitoba   Free  Press,   Winnipeg, 
November  4,  1911. 


86        GOVERNMENT  TELEPHONES 

politics  into  the  running  of  the  business  applies  just 
as  much  to  the  one  party  as  to  the  other,  as  I  do  not 
for  a  moment  mean  to  say  that  if  the  Opposition 
were  in  power  they  would  succeed  any  more  than 
the  present  Government  in  eliminating  this  unpleas- 
ant feature  from  the  business."  89 

(6)  The  reduction  in  rates  made  by  the  Govern- 
ment was  obviously  unjustifiable  and  costly. 

(7)  The    Government   refused   to   provide    any 
financial  reserve  whatsoever,  even  a  reserve  against 
depreciation.90 

(8)  All  receipts  from  the  telephone  service  were 
handed  over  to  the  Provincial  Treasury  and  the  Gov- 
ernment drew  very  heavily  upon  these  telephone 
funds  to  conduct  their  decidedly  amateurish  financial 
operations,  using  telephone  credits  to  meet  the  gen- 
eral expenses  of  the  Province  and  thus  obliging  the 
Commission,  both  for  current  and  for  capital  ex- 
penditure, to  overdraw  its  bank  account  to  an  extent 
which  was,  under  the  circumstances,  at  once  very 
large  and  very  mischievous.91     For  instance,  on  De- 
cember 31,  1909,  the  overdraft  of  the  Commission 
at  the  bank  amounted  to  the  considerable  sum  of 
$367, ooo.92     Not  only  were  such  methods  mani- 

89  Memorandum  (typewritten),  March  25,  1912. 

90  Cf.  pp.  41-42,  supra. 

91  Cf.  p.  60,  supra. 

82  This  sum  was  procured  from  the  bank  by  the  Commission  with 
only  oral  authorization  on  the  part  of  the  Government.  Sessional 
Papers.  Legislative  Assembly  of  Manitoba.  Session  1910.  Ap- 


UNDER  FIRST  COMMISSION          87 

festly  inexpedient,  but  they  were  also  exceedingly  ex- 
pensive for  the  Commission. 

In  this  connection  we  may  recall  the  promises  of 
the  Government  that  political  considerations  would 
be  eliminated  from  the  telephone  management  and 
that  the  service  would  be  self-sustaining. 

LONG    DISTANCE    RATES    INCREASED;    PROPOSAL    TO 
REVISE  EXCHANGE  RATES  VIOLENTLY  AT- 
TACKED BY  THE  PUBLIC 

Since  the  people,  in  spite  of  all  subterfuges  on  the 
part  of  the  Government,  continued  to  hold  the  Gov- 
ernment responsible  for  telephone  conditions,  when 
it  was  seen  (early  in  1911)  that  an  indication  of  the 
real  financial  results  of  the  telephone  system  would 
shortly  become  public  property,  the  Government 
found  itself  in  a  highly  vulnerable  position;  and  in 
order  to  relieve  the  Treasury  from  the  financial  em- 
barrassment which  would  necessarily  result  from 
having  to  meet  continuous  telephone  deficits,  the  Gov- 
ernment resolved  upon  drastic  action.  It  deter- 
mined to  raise  the  telephone  rates,  though  in  doing 
so  it  was  obliged  to  repudiate  another  pledge  and  to 
admit  that  in  undertaking  to  give  a  telephone  service 
at  one-half  the  Bell  rates,  it  had  been  altogether 
wrong. 

pendix  A.    Evidence  Taken  before  the  Public  Accounts  Committee 
during  the  Session  of  1910,  pp.  700-701. 


88         GOVERNMENT  TELEPHONES 

The  Government's  first  step  in  this  direction 
took  place  in  the  spring  of  1911,  when  it  con- 
sented to  the  Commission's  proposal  to  increase  long 
distance  revenue  by  abolishing  the  reduced  rates  for 
long  distance  service  at  night  and  —  in  day  service 
—  by  substituting  an  initial  period  of  two  minutes 
in  place  of  the  existing  initial  period  of  three  min- 
utes, though  retaining  the  same,  or  nearly  the  same, 
rate  for  the  two-minute  period  as  had  been  charged 
for  the  three-minute  period.  pThe  rates  for  each 
additional  minute  in  excess  of  the  initial  period  were 
also  raised.  The  new  schedule,  which  went  into  ef- 
fect on  May  i,  1911,  therefore  involved  a  consid- 
erable, though  indefinite,  increase ;  indeed,  the  Mani- 
toba Free  Press  concluded  that  u  the  cost  of  long 
distance  telephoning  will  be  just  about  doubled."  93 

Then,  in  November,  1911,  the  Commission  an- 
nounced to  the  public  that  the  telephone  accounts  for 
that  year,  when  published,  would  show  a  loss  of 
$150,000  and  that  the  Commission  intended  to  rec- 
ommend to  the  Government  certain  changes  in  the 
classification  of  subscribers.94  The  proposed  sched- 
ule of  rates,  thus  presaged  in  this  announcement,  was 
approved  by  the  Government  and  announced  by  the 
Commission  on  December  12,  19 n.95  Incidentally, 
it  should  be  noted  that  when  the  reductions  were  an- 

93  The  Manitoba  Free  Press,  Winnipeg,  April  13,  1911. 

94  Cf.  Winnipeg  newspapers  of  November  4,  1911. 

95  Cf.  Winnipeg  newspapers  of  December  13,  1911. 


UNDER  FIRST  COMMISSION          89 

nounced,  the  Government  took  upon  themselves  the 
task  of  announcing  them,96  but  that  when  any  in- 
creases were  to  be  announced  the  Government  re- 
quired the  Commission  to  assume  the  responsibil- 
ity.97 

The  proposed  schedule  was  as  follows : 98 

Winnipeg. 

(Installation  charge  of  $2.50  on  each  new  line.) 

a)  Business  Service. 

Individual  line  ...  $4  per  month,  allow- 
ing 100  calls  per  month  without  addi- 
tional charge;  calls  in  excess  of  100,  2 
cents  each. 

Individual  Line,  Prepayment  Service  .  .  . 
guarantee  of  minimum  revenue  of  10 
cents  per  day  required;  each  call  5  cents, 
but  a  rebate  of  2  cents  on  each  call  in 
excess  of  guaranteed  minimum. 

b)  Residence  Service. 

Individual  line  ...  $4  per  month,  allow- 
ing unlimited  service. 

Individual  line  .  .  .  $1.50  per  month,  al- 
lowing 30  calls  per  month  without  addi- 
tional charge;  calls  in  excess  of  30,  2 
cents  each. 

96  Cf.  p.  62,  supra. 

97  The    Government   thus   paved   the  way  for   diverting   to   the 
Commission  the  brunt  of  the  subsequent  attack  upon  the  rates. 

98  The  Winnipeg  Telegram,  December  13,  1911. 


90        GOVERNMENT  TELEPHONES 


Individual  Line,  Prepayment  Service  .  .  . 
same  rate  as  in  the  case  of  business  serv- 
ice. 

(The  radius  of  the  exchange  area  was  increased 
from  two  to  three  miles.  Party  lines  within  the  ex- 
change area  were  abolished.) 


All  Other  Exchanges. 
Winnipeg.) 


(i.e<,  all  exchanges  except 


No.  OF 

SUBSCRIBERS 

IN  EXCHANGE 

ANNUAL  SUBSCRIPTION 

Business 

Residence 

Rural 

Less  than  100   (day  service  only)  .  . 
Less  than  100  (continuous  service)  .  . 

inn  —  or\r\ 

$25. 
3i- 
Si- 
32. 
34- 
36. 
40. 
45- 

$15- 
18. 
18. 
19- 

21. 
23- 
24- 
27. 

$20. 
25. 
25. 
26. 
27- 
29. 

$«• 

36. 

2OO  —  3OO 

3OO  —  J.OO 

4.OO  —  ?OO 

5OO-IOOO    . 

Ten  per  cent,  discount  for  prompt  payment  of  six  months'  subscrip- 
tion in  advance. 

The  proposed  rates  were  to  apply,  from  April  i, 
1912,  to  all  subscribers  and  from  January  i,  1912, 
to  new  subscribers.  As  may  be  seen,  the  schedule 
made  the  measured  rate  system  compulsory  (instead 
of  optional)  for  business  service  in  Winnipeg;  it 
abolished  all  flat  rates  in  Winnipeg  except  for  in- 
dividual line  residence  service  (the  rate  for  which 
was  increased  from  $25  to  $48  per  year)  ;  and  it 
increased  the  flat  rates  in  small  towns  and  in  rural 
districts  in  almost  every  case. 


UNDER  FIRST  COMMISSION          91 

The  reasons  for  the  proposed  adoption  of  an 
obligatory  measured  rate  system  in  Winnipeg  were 
thus  explained  by  the  Chairman  of  the  Telephone 
Commission  in  a  statement  to  the  press : 

"  The  number  of  calls  per  subscriber  (in  Winni- 
peg) is  more  than  double  that  in  the  cities  of  Great 
Britain,  Germany,  Australia,  and  the  United  States, 
where  measured  service  is  now  fully  developed. 
This  indiscriminate  use  of  the  telephone  not  only  pro- 
duces congestion,  but  is  primarily  the  first  cause  for 
any  poor  service  that  may  be  experienced  by  the  sub- 
scriber. It  is  this  waste  of  100,000  calls  a  day 
that  has  led  the  Telephone  Commission  to  recom- 
mend to  the  government  that  measured  service  for 
Winnipeg  can  be  introduced  under  conditions  that 
will  make  the  telephone  even  more  reasonable  in 
price  than  it  is  under  the  flat  rate.  It  will  reduce 
the  cost  of  operation  to  a  very  large  extent,  provide 
a  better  service,  and  will  be  so  regulated  that  the 
heavy  users  will  pay  for  the  service  they  receive  and 
not,  as  in  the  past,  have  such  service  paid  for  by  the 
small  user."  " 

Although  this  application  of  the  measured  service 
principle  of  rate-making  was,  under  the  circum- 
stances, technically  justifiable,  yet  events  showed  that 
at  the  time  it  was  announced  it  was  a  tactical  blun- 
der. An  increase  of  the  rates  for  unlimited  service, 
to  which  the  people  were  accustomed,  would  with- 

99  The  Winnipeg  Telegram,  December  13,  1911. 


92         GOVERNMENT  TELEPHONES 

out  doubt  have  aroused  opposition;  but  the  strength 
of  such  opposition  could  hardly  have  been  so  great 
as  that  which  the  novelty  of  compulsory  measured 
service  actually  encountered.  Moreover,  the  nov- 
elty of  the  proposal  served  to  focus  public  discus- 
sion and  agitation  upon  the  rates  themselves,  while 
the  causes  underlying  the  rates  were  obscured. 
[Thus  in  Winnipeg  an  essentially  false  issue  was 
raised. 

Immediately  upon  the  announcement  of  the  pro- 
posed schedule  (December  12,  1911),  a  storm  of 
disapproval  swept  over  the  Province.1  Public 
meetings  of  protest  were  held.  Petitions  of  remon- 
strance were  circulated.  Business  men  welcomed 
opportunities  to  give  their  views  for  publication  and 
expressed  their  indignation  vociferously.  The  Op- 
position and  the  independent  press  were  swamped 
with  vibrating  letters  from  outraged  subscribers. 
Ardent  supporters  of  the  Government  were  unable 
to  restrain  their  wrath.  The  vitriolic  outbursts  of 
irate  citizens  nearly  exhausted  the  supply  of  con- 
demnatory epithets  and  adjectives.  "  Outrageous," 
"  ridiculous,"  "  impossible,"  "  preposterous,"  "  out- 
landish," "  absurd,"  "  nonsensical,"  "  unreasonable," 
and  "  extortionate  "  were  among  the  many  kindred 
terms  which  were  applied  to  the  proposed  rates. 
Even  the  Telephone  Commissioners  did  not  escape 
the  torrent  of  denunciation  and  abuse  with  which  the 

1  Cf.  contemporary  Manitoba  press. 


UNDER  FIRST  COMMISSION         93 

Government  was  deluged.  In  addition,  many  bitter 
complaints  were  made  as  to  the  quality  of  the  serv- 
ice, which  was  frequently  compared  —  unfavorably 
—  with  the  service  under  the  Bell  Company;  indeed, 
one  of  the  arguments  advanced  by  the  Chairman  of 
the  Commission  in  defence  of  the  proposed  schedule 
was  to  the  effect  that  the  adoption  of  measured  serv- 
ice rates  would  greatly  improve  the  quality  of  the 
service  —  a  virtual  admission  that  the  service  had 
deteriorated  under  Government  control.  Many 
manifest  instances  of  inefficiency  and  extravagance 
were  also  pointed  out  in  the  public  press.  For 
present  purposes  it  will  suffice  to  dismiss  this  destruc- 
tive criticism  with  merely  calling  attention  to  the  self- 
evident  fact  that  the  complaint  as  to  "  exorbitant " 
rates  in  the  days  of  the  Bell  Company  was  insignifi- 
cant in  comparison  with  this  popular  attack  on  the 
schedule  prepared  by  the  Commission. 

The  business  men  of  Winnipeg,  however,  did  not 
confine  themselves  to  destructive  criticism;  a  num- 
ber of  commercial  associations  endeavored  to  offer 
some  constructive  criticism  in  regard  to  the  local 
rates.  For  instance,  on  December  13,  1911,  the 
directors  of  the  Industrial  Bureau  of  Winnipeg  ap- 
pointed a  committee  to  discuss  "  the  increase  of  tele- 
phone rates  with  the  authorities  of  the  province  " ; 
and  on  December  I9th,  the  Winnipeg  Board  of 
Trade  also  appointed  a  committee  to  inquire  into  the 
telephone  situation.  These  two  committees  pro- 


94        GOVERNMENT  TELEPHONES 

ceeded  to  cooperate,  though  they  rendered  separate 
reports.  Both  committees  condemned  the  failure 
to  provide  any  reserve  against  depreciation  and  both 
called  attention  to  the  prejudicial  effect  of  revenue 
resulting  from  the  unwarranted  reduction  of  the  resi- 
dence rate  in  1909.  Both  committees  found  oper- 
ating expenses  unduly  high  —  though  neither  was 
able  to  explain  why  2 —  and  both  concluded  that  con- 
siderable economies  in  expenses  could  be  effected. 
In  view  of  the  increased  expenses,  both  committees 
recognized  the  necessity  for  an  increase  in  revenue. 
However,  in  suggesting  rate  schedules  which,  in  their 
opinions,  would  provide  the  additional  revenue  re- 
quired, the  committees  were  not  in  agreement:  the 
Board  of  Trade  committee  and  Mr.  Christie  of  the 
Industrial  Bureau  committee  recommended  flat  rates 
only,  while  Mr.  Piper  of  the  Industrial  Bureau  com- 
mittee favored  measured  service  in  addition  to  un- 
limited service.  On  the  other  hand,  both  commit- 
tees were  unanimous  in  urging  the  use  of  two  and 
four  party  lines.3 

Some  of  the  critics  of  the  Government  —  notably 
the  Manitoba  Free  Press  —  continued  to  attribute 
the  failure  of  the  telephone  enterprise  to  the  price 
paid  for  the  plant  acquired  from  the  Bell  Company, 

2  These  committees  did  not  deal  with  the  question  of  the  relation 
of  the  Government  to  the  Telephone  Commission. 

3  Report  of  A  Citizens'  Committee  of  Inquiry  as  to  Local  Telephone 
Rates.    The   Winnipeg   Industrial   Bureau,    March   26,    1912.    #*- 
port  of  the  Telephone  Committee,  The  Winnipeg  Board  of  Trade, 
March  a6,  1912. 


UNDER  FIRST  COMMISSION         95 

alleging  that  the  price  was  excessive.  The  defence 
of  the  purchase  price  which  the  Government  made 
at  the  time,  however,  is  certainly  very  convincing. 
It  will  be  remembered  that  the  Government  con- 
tended that  the  reasonableness  of  the  purchase  price 
would  be  proved  by  consideration  of  such  factors 
as  that  the  plant  purchased  included  much  advance 
construction,  that  the  Bell  Company  accepted  pay- 
ment in  Provincial  bonds  at  par,  that  the  alternative 
to  purchase  was  costly  and  precarious  competition, 
that  an  allowance  was  properly  made  for  forced  sale, 
and  that  there  were  other  legitimate  intangibles.4 
Nevertheless,  even  assuming  that  the  purchase  price 
was  excessive,  its  financial  failure  cannot  be  ascribed 
to  that  cause.  The  margin  between  success  and 
failure  was  not  so  small  that  a  reduction  of  even  as 
much  as  $50,000  a  year  in  interest  charges  would 
have  served  to  turn  the  scales,  for  the  real  deficit 
in  1911  was  over  $200,000; 5  and  any  argument  that 
the  rates  had  to  be  r-aised  as  a  result  of  the  burden 
of  an  excessive  purchase  price,  cannot  be  held  as 
valid.6 

*Cf.  pp.  29-31,  supra. 

5  Cf.  pp.  81-83,  supra. 

6  Vague  suggestions  were  made  about  corruption  in  connection 
with  the  purchase.     However,  not  only  has  no  specific  charge  been 
made  against  any  one,  but  the  circumstances  of  the  time  seem  to  pre- 
clude the  possibility  of  any  corruption  having  existed  in  that  con- 
nection. 


96        GOVERNMENT  TELEPHONES 

APPOINTMENT  OF  A  ROYAL  COMMISSION,  UNDER  THE 
CONTROL  OF  THE  GOVERNMENT,  TO  INVESTI- 
GATE THE  TELEPHONE  COMMISSION 

In  replying  to  the  critics  of  the  proposed  rate 
schedule,  the  members  of  the  Government  endeav- 
ored to  divert  the  entire  attack  to  the  Telephone 
Commission.  They  admitted  that  they  knew  noth- 
ing about  telephones  and  stated  that  they  had  as- 
sented to  the  new  schedule  with  great  reluctance, 
and  only  upon  the  urgent  advice  of  the  Commission, 
to  which  they  gave  a  clean  bill  of  health  as  being 
composed  of  competent  and  efficient  telephone  spe- 
cialists.7 The  whole  responsibility  lay  with  the 
Commission,  they  said;  the  Government  had  merely 
endorsed  what  the  Commission,  with  its  technical 
knowledge,  had  seen  fit  to  prepare.  So  great  was 
the  violence  of  the  attack,  however,  that  the  Gov- 
ernment were  forced,  in  self-protection,  to  adopt 
some  more  plausible  means  of  appeasing  public  in- 
dignation. Accordingly,  by  an  order-in-council 
dated  the  thirtieth  of  January,  1912,  the  Govern- 
ment appointed  a  Royal  Commission  of  Inquiry, 
composed  of  Mr.  Justice  Locke  of  the  Manitoba 
bench,  Mr.  G.  R.  Crowe  of  Winnipeg  and  Mr.  R.  L. 

7  For  example,  on  January  4,  1912,  the  Premier  said:  "We  have 
implicit  faith  in  our  (telephone)  commissioners.  We  believe  they 
are  honest,  capable  men,  loyal  to  the  interests  entrusted  to  them." 
The  Tribune,  Winnipeg,  January  5,  1912. 


UNDER  FIRST  COMMISSION         97 

Barry  of  Minneapolis.8  This  Royal  Commission 
appointed  a  Counsel,  a  Secretary,  and  a  firm  of  ac- 
countants to  aid  in  the  examination  of  the  accounts, 
and  began  its  proceedings  on  February  2,  1912. 
The  Commission  held  sessions  at  Winnipeg  and  at 
various  places  throughout  the  Province,  and  in- 
spected the  telephone  plants  at  St.  Paul  and  Min- 
neapolis (Minn.),  La  Crosse  (Wis.),  and  Chicago 
(111.)  ;  234  witnesses  were  examined  and  7080  folios 
of  evidence  were  obtained,  at  a  total  cost  of  $22,- 
ooo.9  The  final  Report  of  the  Commission  was 
dated  May  20,  1912,  but  was  not  made  public  by 
the  Government  until  June  I4.10 

Almost  at  the  outset  of  their  final  Report,  the 
Royal  Commission  made  this  extraordinary  admis- 
sion: 

8  Interim    Report.    Sessional    Paper    No.    19.    Sessional   Papers. 
Legislative  Assembly  of  Manitoba.    Session  1912,  pp.  508-9.    The 
shrewd  politicians  comprising  the  Government  went  through  the 
ceremony  of  having  the  Telephone  Commission  formally  request  the 
Government  for  the   appointment  of  the   investigating  committee, 
whereupon  the  Government  formally  consented  to  the  request.     (Cf. 
the  Manitoba  Free  Press,  Winnipeg,  January  n,  1912.)     In  spite  of 
this    elaborate    pretense  —  which    was    typical    of    the    subterfuges 
habitually  practised  by  the  Government  —  there  can  be  no  doubt  that 
the  initiative  in  the  matter  was  taken  by  the  Government.     Cer- 
tainly the  Government  carefully  reserved  to  itself  the  right  of  deter- 
mining the  scope  of  the  inquiry,  which,  as  will  be  seen,  was  the  all- 
important  factor. 

9  The  Manitoba  Free  Press,  Winnipeg,  June  14,  1912.    This  evi- 
dence was  not  published  by  the  Government.    The  only  form  in 
which  it  exists  is  in  the  typewritten  copies  of  the  Stenographic  Re- 
port. 

10  The  Report  of  the  Royal  Commission  was  published  only  in  the 
newspapers;   e.g.,  the  Manitoba  Free  Press,  Winnipeg,  June  14, 
1912. 


98         GOVERNMENT  TELEPHONES 

"  A  rather  remarkable  incident  of  the  sessions  of 
Winnipeg,  in  view  of  the  deep  interest  undoubtedly 
taken  by  the  public  in  the  question,  was  the  almost 
complete  absence  of  volunteer  evidence,  a  small  dele- 
gation from  Binscarth  and  one  citizen  of  Winnipeg 
being  the  only  volunteer  evidence  that  was  brought 
before  your  Commissioners  at  the  Winnipeg  Ses- 
sions. ...  At  the  meetings  throughout  the  country 
there  was  invariably  a  very  large  attendance  of  the 
public.  The  Winnipeg  Sessions  were  characterized 
by  almost  absolute  indifference  on  the  part  of  the 
public,  as  indicated  by  non-attendance."  n 

This  phenomenon  of  public  indifference  in  Winni- 
peg deserves  analysis.  Although  without  doubt  it 
was  partly  due  to  the  volatile  character  of  the  com- 
munity, yet  it  suggests  two  further  explanations 
which  are  not  inconsistent  and  are  therefore  prob- 
ably both  applicable.  The  first  explanation  lies  in 
the  habit  of  leaning  upon  the  Government  which  is 
observable  in  communities  of  the  type  to  which  Man- 
itoba belongs, —  a  habit  which  results  in  feverish 
anxiety  to  get  the  Government  to  deal  with  a  mat- 
ter, followed  by  complete  relaxation  of  interest  as 
soon  as  the  Government  undertakes  to  deal  with  it. 
This  habit  was  apparent  at  the  time  of  the  acquisi- 
tion of  the  telephone  system  and  its  recurrence  is 
not  strange. 

But  another  explanation  is  equally  valid,  namely, 

11  Report  of  the  Royal  Commission. 


UNDER  FIRST  COMMISSION         99 

a  distrust  of  the  good  faith  of  the  investigating 
Commission;  for  an  analysis  of  the  powers  con- 
ferred upon  the  Royal  Commission  by  the  Govern- 
ment discloses  the  fact  that  the  Commission  was 
authorized  to  investigate  only  the  acts  of  the  Tele- 
phone Commission.  The  relation  of  the  Govern- 
ment to  the  telephone  enterprise  was  therefore  in- 
ferentially  excluded  from  the  scope  of  the  inquiry. 
Indeed,  the  reference  to  the  Royal  Commission  was 
quite  precise :  it  was  authorized  to  investigate  "  the 
conduct  and  administration  "  of  the  Manitoba  Gov- 
ernment Telephones  by  the  Telephone  Commission 
appointed  January  15,  1908;  and  in  calling  for  evi- 
dence by  means  of  public  advertisements,  the  Royal 
Commission  requested  to  hear  from  all  associations 
and  individuals  "  having  complaints  against  the  said 
administration"  12  Thus  there  was  no  pretense  of 
any  thorough  inquiry:  the  subjects  of  investigation 
were  to  be  the  charges  against  the  Telephone  Com- 
mission, and,  in  its  Report,  the  Royal  Commission 
took  credit  to  itself  for  having  endeavored  to  induce 
such  charges  to  be  made.  It  is  certainly  clear  that 
the  Government,  finding  itself  in  danger  from  the 
indignation  of  the  public,  had  resolved  to  sacri- 
fice the  Telephone  Commissioners  and  had  conse- 
quently put  the  Commissioners  in  the  position  of 
culprits  at  the  bar  —  while  the  scales  of  justice  were 
loaded  against  them.  There  is  reason  to  believe 

12 Report  of  the  Royal  Commission  (opening  paragraphs). 


ioo      GOVERNMENT  TELEPHONES 

that  the  Winnipeg  public  suspected  the  intention  of 
the  Government  and  did  not  choose  to  lend  assist- 
ance to  a  farce  in  which  the  Government  pretended 
to  assume  a  disinterested  attitude  but  actually  care- 
fully concealed  all  important  relevant  matters.  If 
this  was  the  reason  for  the  absence  of  the  Winnipeg 
public  from  the  sessions  of  the  Royal  Commission, 
their  absence  was  very  creditable  to  them:  they  re- 
fused to  be  parties  to  proceedings  which  could  not 
fail  eventually  to  bring  discredit  upon  every  one 
concerned. 

Since  the  evidence  taken  by  the  Royal  Commis- 
sion continued  until  the  end  of  April,  before  discuss- 
ing this  evidence  chronology  demands  reference  to 
two  matters  of  record,  indicative  of  the  spirit  in 
which  the  inquiry  was  conducted.  Under  date  of 
March  i,  the  Royal  Commission  made  a  brief  interim 
report,  consisting  of  a  recommendation  that  the  en- 
forcement of  the  proposed  rate  schedule  be  post- 
poned until  the  conclusion  of  the  inquiry.13  There 
is  no  doubt  that  this  recommendation  was  inspired 
by  the  Government,  who  thus  utilized  the  inquiry 
as  a  means  of  unostentatiously  disposing  of  the  pro- 
posed rates  —  for  the  rates,  thus  indefinitely  post- 
poned, were  quietly  killed.  A  fortnight  later,  in 
the  Legislative  session  of  March  14,  1912,  the  Op- 
position leader,  evidently  realizing  that  the  Royal 

13  Interim   Report.     Sessional   Paper   No.    19.    Sessional  Papers. 
Legislative  Assembly  of  Manitoba.    Session  1912,  pp.  508-9. 


UNDER  FIRST  COMMISSION        101 

Commission  was  largely  under  the  thumb  of  the  Gov- 
ernment, moved  that  a  committee  of  the  Legislature 
be  appointed  "  to  examine  and  inquire  into  all  mat- 
ters relating  to  the  Manitoba  Telephone  System."  14 
The  Government  vigorously  opposed  this  proposal 
and  on  a  straight  party  vote  it  was  defeated.15 

TELEPHONE     MISMANAGEMENT    ASCRIBED    BY    THE 
ROYAL   COMMISSION  TO  THE   TELEPHONE   COM- 
MISSION INSTEAD  OF  TO  THE  GOVERNMENT 

From  the  proceedings  of  the  Royal  Commission 
it  soon  became  evident  that  even  the  form  in  which 
the  questions  were  put  —  when  the  evidence  was  be- 
ing taken  —  showed  the  influence  of  the  Govern- 
ment. Moreover,  the  interrogations  by  the  mem- 
bers of  the  Royal  Commission  were  lacking  in  pre- 
cision; even  those  of  the  technical  member  of  the 
Commission  (Mr.  Barry  of  Minneapolis)  were 
characterized  by  vagueness.  Members  of  the  Tele- 
phone Commission  were  expected  to  answer  from 
memory  questions  relating  to  accounts  which  were 
not  placed  before  them,  and  conclusions  were  thus 
often  based  upon  inaccurate  or  incomplete  data. 
The  Royal  Commission  also  endeavored  to  cause 
the  Telephone  Commissioners  to  commit  themselves 
to  conclusions  which  had  already  been  reached  by 
the  Royal  Commission.  Quite  unfounded  assump- 

14  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session  1912, 
p.  87.    Cf.  the  Manitoba  Free  Press,  Winnipeg,  March  15,  1912. 
is  Ibid.,  p.  88. 


io2       GOVERNMENT  TELEPHONES 

tions  which  had  been  manufactured  by  members  of 
the  Government  were  introduced  into  interrogations 
and  the  Telephone  Commissioners  found  themselves 
in  a  dilemma:  they  had  either  to  initiate  an  attack 
upon  the  Government  or  to  fence  with  the  question. 
Nevertheless,  in  spite  of  all  the  difficulties  with 
which  they  were  continually  beset,  throughout  the 
inquiry  the  Telephone  Commissioners  never  made 
any  reflections  on  the  Government,  thus  displaying 
a  standard  of  loyalty  and  honor  quite  consistent  with 
their  characters.  A  thorough  realization  of  this  at- 
titude on  the  part  of  the  Telephone  Commissioners 
is  essential  to  a  proper  perspective  for  considering 
the  evidence  before  the  Royal  Commissioners,  as 
over  and  over  again  the  Telephone  Commissioners 
were  made  to  appear  responsible  for  practices  and 
conditions  over  which  they  had  been  deprived  of 
control.16 

In  view  of  the  partiality  of  the  inquiry  and  the 
various  assumptions,  allegations  and  inaccuracies 
which  appeared  in  the  interrogations  of  the  Royal 
Commissioners,  it  is  not  worth  while  to  accord  much 
space  to  the  details  of  the  evidence  before  the  Royal 
Commission.  In  mere  justice  to  the  Telephone  Com- 
missioners, however,  it  is  necessary  to  call  attention 
again  to  the  real  causes  for  the  existence  of  some  of 
the  conditions  and  practices  for  which  the  Commis- 
sioners, on  the  face  of  the  evidence,  seemed  to  be 

16  Cf .  Stenographic  Report  passim. 


UNDER  FIRST  COMMISSION        103 

the  responsible  agents.  For  example,  the  Report  of 
the  Royal  Commission  comments  upon  the  excessive 
quantity  of  supplies  which  the  Telephone  Commis- 
sion kept  in  stock,  pointing  out  for  instance  that  on 
December  31,  1911,  there  were  162,763  poles  on 
hand,  while  nearly  20,000  more  were  contracted  for 
but  had  not  been  delivered.  "  In  fact,"  adds  the 
Report,  "  poles  were  in  hand  at  the  beginning  of  this 
year  sufficient  at  40  poles  per  mile  to  build  4069 
miles  of  pole  line,  which  is  within  a  very  little  of 
the  total  pole  mileage  constructed  in  the  last  four 
years."  At  that  point,  however,  the  Report  stops 
abruptly,  no  mention  being  made  of  the  reason  for 
this  excessive  supply  of  poles.  But  the  explanation, 
it  will  be  remembered,  has  already  been  given:  the 
Telephone  Commission  had  practically  been  obliged 
by  a  member  of  the  Government  to  purchase  an  ex- 
cessive number  of  poles  from  a  client  of  his  who  was 
in  financial  difficulties.17  Again,  the  Report  of  the 
Royal  Commission  drew  attention  to  the  excessive 
amount  invested  in  real  estate,  but  entirely  neglected 
to  mention  the  fact  that  in  connection  with  purchases 
of  real  estate,  agents  of  the  Government  busied 
themselves  to  obtain  commissions.18 

In  regard  to  the  annual  maintenance  costs  and  the 
accounts  of  maintenance  expenditure,  the  evidence 
before  the  Royal  Commission  was  particularly  dam- 

17  Cf.  p.  40,  supra. 

18  Cf.  the  Manitoba  Free  Press,  Winnipeg,  March  6,  1908;   The 
Tribune,  Winnipeg,  March  4,  1908. 


io4       GOVERNMENT  TELEPHONES 

aging  to  the. Telephone  Commission;  but  even  super- 
ficial analysis  will  relieve  the  Commission  of  respon- 
sibility for  an  undoubtedly  pernicious  state  of  affairs. 
In  regard  to  the  accounts,  the  Commission  was  de- 
prived of  financial  control  —  as  has  already  been 
fully  explained  19 —  and  thus  reconstruction  expenses 
were  included  with  maintenance  expenses.  In  re- 
gard to  costs,  as  a  result  of  the  Government's  policy 
of  rapid  expansion,  the  Commission  found  great 
difficulty  in  finding  competent  employees,  partly  be- 
cause of  the  contemporary  economic  conditions  in 
Manitoba  and  partly  because  of  political  conditions: 
the  Commissioners  scarcely  dared  to  venture  to  ap- 
point people  from  a  distance  even  if  they  were  pro- 
curable and,  being  confined  to  residents  of  Manitoba, 
they  were  forced  to  take  Government  nominees, 
partly  through  political  pressure  and  partly  because 
men  were  scarce.20  Large  numbers  of  the  men  who 
had  to  be  employed  were  unfamiliar  with  the  work 
which  they  were  required  to  do.  Even  "  plant 
chiefs  "  were  unequal  to  the  tasks  assigned  to  them; 
and  thus  the  discipline  of  the  working  gangs  was 
very  defective.  Incompetent  foremen  were  pro- 
moted to  responsible  positions  because  there  was  no 
alternative  or  appeared  to  be  none.  The  Construc- 

19  Cf.  p.  41,  supra,  et  passim.    Another  explanation  perhaps  is 
that  the  Government  did  not  require,  and  perhaps  did  not  desire, 
scrupulous  accuracy  in  accounting.     It  was  easier  to  hide  deficiencies 
when  the  accounts  were  kept  in  a  loose  manner. 

20  Cf.  pp.  40,  44  and  77,  supra,  and  p.  106,  infra. 


UNDER  FIRST  COMMISSION        105 

tion  Engineer  was  helpless ;  he  not  only  had  to  work 
with  the  material  at  his  disposal,  but  he  had  to  force 
the  work.  During  1910,  25  to  35  crews  were  work- 
ing and  it  was  impossible  to  provide  a  skilled  fore- 
man for  each  crew.  Under  such  conditions  it  was 
inevitable  that  a  certain  amount  of  fraudulent  prac- 
tice should  arise.21  In  1911  the  construction  was 
pushed  into  very  difficult  country,  topographically, 
while  the  season  was  very  rainy  —  all  of  which  in- 
volved unusually  high  expenses.22 

While  the  technical  and  the  labor  conditions 
rendered  both  maintenance  and  construction  costly, 
these  were  not  the  only  conditions  which  made  for 
excessive  expenditure  —  there  was  always  the  per- 
vasive political  influence.  For  example,  the  follow- 
ing statement,  though  colored  with  political  partisan- 
ship, is  so  consistent  with  known  facts  that  some 
weight  must  be  attached  to  it.  The  statement  was 
contributed  to  the  Manitoba  Free  Press  by  a  cor- 
respondent at  Brandon :  "  A  high  official  of  the 
government  telephone  system  here,  let  the  cat  out 
of  the  bag  this  morning.  Speaking  to  a  staff  man  of 
the  Free  Press  who  is  a  stranger  to  him  he  stated  in 
the  most  emphatic  terms  that  every  branch  of  the 

21  In  a  number  of  instances,  construction  foremen  secured  vouch- 
ers for  larger  sums  than  they  had  actually  expended  —  and  pocketed 
the  difference.     There  was  also  a  certain  amount  of  leakage  in  con- 
nection with  supplies. 

22  Cf.  Fourth  Annual  Report  of  the  Commissioners  of  Manitoba 
Government  Telephones,  zpn.     Sessional  Paper  No.  25.    Sessional 
Papers.    Legislative  Assembly  of  Manitoba.    Session  1912,  p.  533. 


io6       GOVERNMENT  TELEPHONES 

telephone  system  in  the  province  was  being  used  for 
political  purposes.  '  Some  of  my  men,'  he  said, 
'  have  been  working  practically  night  and  day  dur- 
ing the  past  three  weeks  and  a  great  sigh  of  relief 
will  go  up  from  every  telephone  man  when  the  elec- 
tions are  over.23  In  the  Brandon  district  several 
extra  gangs  were  put  on  a  short  time  ago  to  get  the 
goodwill  of  the  people  and  at  the  present  time  in 
this  one  district  wre  have  no  less  than  42  gangs  work- 
ing, each  one  of  which  is  composed  of  25  to  35  men. 
In  addition  to  that  canvassers  have  been  sent  out, 
not  only  through  this  district,  but  every  part  of  Man- 
itoba, to  have  the  farmers  sign  applications  in  the 
belief  that  a  telephone  line  is  about  to  be  installed 
by  a  generous  government.  The  whole  thing  is  one 
huge  political  graft  and  we  who  are  rushed  to  death 
are  heartily  sick  of  it.'  "  24 

Another  contemporary  criticism  from  the  Free 
Press  may  be  held  to  state  the  case  accurately: 
'  The  deterioration  of  the  telephone  service  is  a 
standing  proof  of  the  manner  in  which  the  combi- 
nation of  public  ownership  and  machine  politics  re- 
sults to  the  injury  of  the  farmer.  The  complaints 
of  the  unsatisfactoriness  of  the  telephone  service  are 
constant.  That  unsatisfactoriness  has  gone  on  in- 
creasing since  the  beginning  of  the  present  system 
in  the  Province  of  having  the  telephone  system  ad- 

23  The  elections  referred  to  were  those  of  July  n,  1910. 

24  The  Manitoba  Free  Press,  Winnipeg,  July  9,  1910. 


UNDER  FIRST  COMMISSION        107 

ministered  by  a  Commission  which  is  hampered  and 
obstructed  by  politics.  The  Commissioners  are  not 
politicians.  But  they  have  to  do  what  the  politi- 
cians in  power  want  done.  The  result  is  that  the 
system  is  loaded  with  employees  appointed  for  po- 
litical reasons.  ...  If  the  Commissioners  were  in- 
dependent of  the  control  of  the  politicians,  they 
would  manage  the  telephone  system  on  purely  busi- 
ness lines.  As  it  is,  they  have  to  administer  it  on 
political  lines."  25 

Strictly  non-partisan  newspapers  were  scarcely  less 
severe.  For  example:  'There  is  no  mincing  of 
matters  by  the  man-in-the-street,  whether  Grit  or 
.Tory;  it  is  felt  that  the  undoubted  managerial  abil- 
ity of  the  Chairman  of  the  Telephone  Commission 
.  .  .  and  of  other  able  officials,  is  too  largely  offset 
by  indirect,  if  not  direct,  influences  not  unconnected 
with  politics."  26 

The  Royal  Commissioners  made  no  mention  of 
accrued  depreciation  or  of  a  sinking  fund  for  the 
amortisation  of  the  debt.  The  only  reference  to  a 
related  question  is  in  the  following  brief  sentences: 
"Up  to  1912  there  has  not  been  any  replacement 
account,  such  expenditure  being  included  in  mainte- 
nance. We  are  of  opinion  that  such  account  should 

25  The  Manitoba  Free  Press,  Winnipeg,  June  21,  1910. 

26  Canadian  Finance,  Winnipeg,  December  20,  1911.     It  is  need- 
less to  state  that  members  of  the  Government  of  course  always  denied 
such  charges  and  insisted  that  the  Commission  was  not  subject  to 
political  influences. 


io8       GOVERNMENT  TELEPHONES 

be  instituted."  27  The  implication  is  that  the  Tele- 
phone Commission  was  responsible  for  the  fact  that 
no  reserves  of  any  kind  were  set  apart.  The  state- 
ment is  thoroughly  disingenuous.  The  question  of 
depreciation  alone  was  vital  to  the  whole  inquiry. 
The  sole  power  to  provide  reserves  lay  not  with  the 
Telephone  Commission,  but  with  the  Government ;  28 
yet  the  Royal  Commissioners  chose  to  ignore  this 
important  fact;  and  a  ridiculous  climax  was  reached 
when,  in  their  Report,  the  Royal  Commissioners 
completely  whitewashed  the  Government. 

By  instruction  of  the  Royal  Commission,  Messrs. 
Webb,  Read,  Hegan,  Callighan  and  Co.,  Chartered 
Accountants,  made  an  examination  into  the  system 
of  bookkeeping  used  by  the  Telephone  Commission 
during  the  years  1909  to  1911;  but  this  examination 
was  not  permitted  to  include  an  audit  of  the  books.29 
In  their  Report,  the  accountants  indicated  that  from 
the  beginning  of  Government  operation  the  system 
of  bookkeeping  employed  was  scarcely  commensurate 
with  the  magnitude  of  the  undertaking.30  It  must 
be  realized  that  prior  to  the  acquisition  of  the 
telephone  system  by  the  Government,  the  records  of 
transactions  were  all  forwarded  to  the  head  office  at 
Montreal  where  the  books  of  the  Bell  Company  were 
kept.  When  the  Government  took  over  the  system, 

27  Report  of  the  Royal  Commission. 

28  Cf.  pp.  41-42  and  71,  supra. 

29  Accountants'  Report  (typewritten),  May  15,  1912. 


UNDER  FIRST  COMMISSION        109 

it  was  clearly  their  duty  to  transfer  the  functions 
previously  exercised  by  the  head  office  either  to  the 
Telephone  Commissioners  or  to  the  Telephone  De- 
partment. As  a  matter  of  fact,  however,  the  Gov- 
ernment adopted  neither  course.  They  entertained 
the  fantastic  idea  that  head  office  functions  were  un- 
necessary; indeed,  one  of  their  arguments  in  favor 
of  the  acquisition  of  the  system  was  that  the  head 
office  expenses  would  thereby  be  eliminated  alto- 
gether.31 Moreover,  when  the  Telephone  Commis- 
sion was  appointed,  the  control  over  construction  was 
expressly  reserved  to  the  Telephone  Department, 
i.e.,  to  the  Government.32  Yet  the  construction  had 
to  be  carried  out  by  the  officers  of  the  Commission, 
and  the  supplies  in  the  hands  of  the  Commission  had 
to  be  drawn  upon  for  construction  purposes.  The 
result  was  inevitable  confusion  between  the  construc- 
tion and  the  operating  accounts,  and  great  confusion 
in  the  stores  accounts.  Some  of  the  defects  in  ac- 
counting were  gradually  remedied;  but  even  apart 
from  the  confusion  entailed  by  the  division  of  re- 
sponsibility, it  would  appear  that  the  internal  organ- 
ization of  the  system  was  not  able  to  expand  to  keep 
pace  with  the  excessive  speed  in  construction  de- 
manded by  the  Government.33 

As  has  been  indicated,  throughout  the  long  course 
of  the  Telephone  Investigation  from  the  beginning 

31  Cf.  p.  33,  supra.  33  Cf.  pp.  43-44,  supra. 

32  Cf.  p.  37,  supra. 


no      GOVERNMENT  TELEPHONES 

of  February  until  the  end  of  April,  1912,  the  Tele- 
phone Commissioners  conducted  themselves  with 
dignity  and,  for  the  most  part,  in  silence.  The 
Royal  Commissioners  explicitly  state  in  their  Report 
that  they  received  from  the  Telephone  Commission- 
ers, upon  requisition,  "  a  tremendous  amount  of  sta- 
tistical and  other  information  " ;  and  they  express 
their  obligations  to  the  Telephone  Commission, — 
especially  to  the  Chairman  for  "  the  courteous  and 
kindly  manner  in  which  he  responded  to  our  constant 
demands  upon  him."  The  Royal  Commissioners, 
however,  felt  that  they  should  "  report  that  all  evi- 
dence got  was  the  result  of  and  in  answer  to  our  own 
efforts  and  requisitions,  and  the  (Telephone)  Com- 
missioners apparently  did  not  consider  it  their  duty, 
and  as  a  matter  of  fact  did  not  offer  or  volunteer  any 
evidence  whatever  in  aid  of  the  inquiry  or  other- 
wise." 34 

This  naturally  was  the  dignified  course  for  the 
Telephone  Commissioners  to  pursue.  The  Chair- 
man of  the  Telephone  Commission  must  have  real- 
ized the  fraudulent  character  of  the  Royal  Commis- 
sion. He  could  not  impede  it,  but  he  could  at  least 
refrain  from  giving  its  ridiculous  proceedings  the 
advantage  of  his  spontaneous  assistance.  The  in- 
justice and  cowardice  of  the  Government  are  beyond 
description.  The  members  of  the  Government 
knew  perfectly  well  what  they  were  doing:  they  were 

34  Report  of  the  Royal  Commission. 


UNDER  FIRST  COMMISSION        in 

deliberately  making  scape-goats  of  men  whom  they 
had  induced  to  enter  their  service  on  the  pretense 
that  they  intended  to  conduct  the  telephone  business 
on  sound  commercial  lines.  When  the  Telephone 
Commissioners  pointed  out  that  the  policies  of  the 
Government  were  inconsistent  with  sound  business 
principles,  they  were  told  that  their  advice  was  not 
wanted;  but  when  these  policies  aroused  the  indig- 
nation of  the  public,  the  members  of  the  Govern- 
ment attempted  to  divert  that  indignation  upon  the 
heads  of  the  Commission  by  instituting  a  tribunal 
for  the  purpose  of  trying  the  Commissioners  as  if 
they  were  culprits, —  an  ingenious  but  discreditable 
device. 

In  general  the  Report  of  the  Royal  Commission- 
ers is  an  inconclusive  and  unsatisfactory  document, 
for  the  conduct  of  the  Telephone  Commissioners 
was  inquired  into  and  not  the  conduct  of  the  Gov- 
ernment. At  every  point  the  inquiry  led  to  the 
threshold  of  the  Government  —  but  there  it  stopped. 
Instead  of  honestly  taking  their  share  of  the  blame, 
the  Government  chose  the  dishonorable  course  of 
virtually  prosecuting  the  Commissioners,  whose 
faults  arose  solely  from  the  fact  that  they  were  con- 
sistently loyal  to  a  Government  which  was  disloyal 
to  them.  The  people  of  Winnipeg,  irrespective  of 
political  party,  seemed  to  have  understood  the  sit- 
uation and  spontaneously  declined  to  be  parties  to 
the  infamous  proceedings. 


ii2       GOVERNMENT  TELEPHONES 

RESIGNATION   OF  THE   TELEPHONE    COMMISSION 

When  the  Report  of  the  Royal  Commission  was 
presented  toward  the  end  of  May,  1912,  the  Gov- 
ernment—  in  spite  of  the  fact  that  nothing  what- 
ever to  the  discredit  of  the  members  of  the  Tele- 
phone Commission  had  emerged  during  the  sessions 
of  the  Royal  Commission  —  appear  to  have  reached 
the  conclusion  that  the  easiest  method  of  extricating 
themselves  from  the  difficulties  in  which  they  were 
involved,  would  be  to  have  the  two  remaining  Com- 
missioners sever  their  connections  with  the  telephone 
system.35  Now,  if  the  Commissioners  were  dis- 
missed from  office  they  would  be  in  a  position  to 
embarrass  the  Government  by  disclosing  the  true 
state  of  affairs;  but  if  they  could  be  induced  to  re- 
sign, the  faults  of  the  Government  would  be  carried 
with  them  into  oblivion.  An  emissary  of  the  Gov- 
ernment succeeded  in  securing  the  resignations  of 
the  Commissioners  to  take  effect  on  July  i,  1912, 
although  they  did  not  actually  leave  office  until  two 
weeks  after  that  date.  That  the  resignations  were 
in  a  manner  forced,  there  can  be  no  doubt;  yet  the 
withdrawal  of  the  Commissioners  "  saved  the  face  " 
of  the  Government  and  afforded  the  members  of  the 
Government  an  opportunity  of  rehabilitating  their 
declining  political  fortunes. 

35  The  Commissioner  Auditor  had  resigned  on  February  17,  1912. 
Cf.  the  Manitoba  Free  Press,  Winnipeg,  February  17,  1912. 


UNDER  FIRST  COMMISSION        113 

The  following  is  a  copy  of  the  letter  of  resigna- 
tion addressed  to  the  Premier,  dated  June  27,  1912, 
and  signed  by  both  Commissioners: 

"  Pursuant  to  your  request  just  conveyed  through 
the  Hon.  Mr.  Coldwell,  we  hereby  tender  our  resig- 
nation as  Commissioners  of  Manitoba  Government 
Telephones,  to  take  effect  July  ist,  1912,  and  in  do- 
ing so  may  we  express  the  hope  and  belief  that 
neither  your  Government  nor  our  successors  will  be 
misled  by  the  gross  misstatements  of  fact,  and  the 
erroneous  opinions  and  conclusions  expressed  in  the 
Royal  Commission's  report." 

With  the  resignation  of  the  Telephone  Commis- 
sioners, the  first  phase  of  the  history  of  the  Mani- 
toba Government  telephone  system  comes  to  a  close. 
The  entire  period  was  dominated  by  political  influ- 
ence and  political  considerations,  more  or  less  ef- 
fectually concealed  behind  the  elaborate  pretenses 
and  the  fair  words  of  the  Government.  The  pledge 
of  non-partisan  commercial  management  was  not 
kept.  The  Bell  rates,  far  from  being  "  cut  in  two  " 
as  promised  on  so  many  occasions,  were  maintained 
intact  for  fifteen  months,  when  the  Government  ef- 
fected such  slight  reductions  as  might  best  redound 
to  their  political  advantage.  These  unwarranted 
reductions,  when  combined  with  the  political  ac- 
counting methods  employed  by  the  Government,  con- 


ii4       GOVERNMENT  TELEPHONES 

tributed  largely  to  the  disastrous  failure  to  fulfill  the 
promise  that  the  service  would  be  self-sustaining. 
Finally,  finding  themselves  in  jeopardy  from  the 
wrath  aroused  by  the  force  of  the  contrast  between 
promise  and  performance,  the  Government  delib- 
erately sacrificed  their  loyal  servants  that  their  own 
sins  might  go  unpunished.  After  four  years  of 
public  ownership  a  prosperous  business  was  well 
along  the  road  to  ruin. 


Ill 

THE  GOVERNMENT  SYSTEM 
REORGANIZED 

APPOINTMENT    OF    A    SINGLE    TELEPHONE    COMMIS- 
SIONER FOLLOWED  BY  OSTENSIBLE,  BUT  LARGELY 
INEFFECTUAL,    ADMINISTRATIVE   REFORMS 

UPON  the  sudden,  though  not  undesired,  resigna- 
tion of  the  Telephone  Commission  originally  ap- 
pointed, it  was  incumbent  upon  the  Government  im- 
mediately to  give  some  outward  and  visible  sign  of 
an  intention  to  purge  the  Provincial  telephone  sys- 
tem of  the  more  conspicuous  of  the  evils  which  ac- 
companied political  control;  for  a  reform  of  the 
system  —  or  at  least  the  semblance  of  a  reform  — 
was  essential  to  the  Government's  political  welfare. 
Accordingly,  on  July  I,  1912,  Mr.  R.  L.  Barry  — 
who  had  been  a  member  of  the  Royal  Commission 
—  was  appointed  to  act  as  sole  Telephone  Com- 
missioner, and  was  charged  with  the  duty  of  re- 
organizing "  the  property  and  management "  l  so 

1  Fifth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ending  November  30th,  1912,  p.  3.  (This  is  the 
first  annual  report  of  the  Government  telephone  system  which  was 

"5 


n6       GOVERNMENT  TELEPHONES 

as  to  produce  the  quick  results  demanded  by  the 
political  situation,  or,  in  other  words,  so  as  to  enable 
the  Government  to  make  immediate  political  capital 
out  of  an  alleged  telephone  u  reform."  2  Although 
it  appears  from  the  contemporary  Opposition  press 
that  Mr.  Barry  did  not  actually  assume  charge  of  the 
system  until  July  i6th,3  yet  so  well  did  he  fulfill  the 
requirements  of  speed  that  on  August  i6th,  exactly 
one  month  later,  the  work  of  reorganization  was 
completed  and  he  was  able  to  resign.4  There  is  con- 
siderable doubt,  however,  as  to  what  took  place  un- 
der the  reorganization;  the  details  given  in  the  an- 
nual report  of  the  system  for  the  fiscal  year  1912 
were  couched  in  such  ambiguous  political  phraseology 
and  were  so  palpably  contradictory  as  to  be  prac- 
tically meaningless.  Nevertheless,  even  from  super- 
ficial analysis  of  the  official  reports  it  is  clear  that  the 
political  principle  of  "  reform  for  reform's  sake  " 
was  carried  out  in  many  ways,  that  changes  in  form 
took  place  rather  than  changes  in  substance;  and,  al- 
though it  is  probable  that  some  beneficial  changes 
were  effected  —  especially  in  the  methods  of  pur- 
chasing and  of  handling  supplies  —  the  conclusion  is 

issued  as  a  separate  document  in  addition  to  being  printed  among 
the  Sessional  Papers.) 

2  By  the  appointment  of  the  investigator  as  the  administrator,  the 
Government  adopted  a  not  unusual  political  method  of  assuaging 
popular  discontent  and  distrust. 

3  Cf.  the  Manitoba  Free  Press,  Winnipeg,  July  4,  1912. 

4  Fifth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ending  November  30th,  1912,  p.  3. 


REORGANIZED  117 

inevitable  that  the  reorganization  was  largely  nom- 
inal. The  cost  of  the  "reorganization"  ($14,- 
600),  though,  was  by  no  means  nominal.5 

The  result  of  the  "  reorganization  "  is  stated  to 
have  been  the  immediate  diminution  of  unit  operat- 
ing costs.6  As  a  matter  of  fact,  however,  the  ex- 
istence of  a  relationship  of  cause  and  effect  between 
the  "  reorganization  "  and  the  reduction  of  costs  is 
not  established.  That  expenses  were  somewhat  re- 
duced is  clear;  but  the  reduction  was  to  a  large  ex- 
tent a  purely  political  move  on  the  part  of  the  Gov- 
ernment, who  produced  it  by  temporarily  sacrificing 
some  of  the  influence  which  it  and  its  political 
adherents  had  been  accustomed  to  exert.  Further- 
more, the  "  reorganization  "  developed  a  good  deal 
of  friction  among  the  employees,  with  the  result  that 
a  large  number  of  employees  holding  executive  posi- 
tions resigned;  and  the  Government  took  advantage 
of  the  opportunity  and  effected  appreciable  econ- 
omies by  reducing  the  salaries  attached  to  these  su- 
perior positions, —  a  practice  which  is  by  no  means 
infrequent  in  Government  departments. 

Upon  the  resignation  of  Mr.  Barry  (August  16, 
1912),  Mr.  George  A.  Watson  of  Minneapolis  was 
appointed  Commissioner  of  Telephones  and  the  sys- 
tem was  placed  under  the  supervision  of  an  Advisory 

5  Fifth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ending  November  30th,  1912,  p.  12. 
•  Ibid.,  p.  4. 


n8       GOVERNMENT  TELEPHONES 

Board  of  which  Mr.  H.  A.  Robson,  K.  C.,  the  Pub- 
lic Utilities  Commissioner  (a  Public  Utilities  Com- 
mission having  been  created  in  April  I9I2)7  was  a 
member.  The  effect  of  this  change  was  to  give  the 
Commissioner  of  Telephones  considerably  more  inde- 
pendent executive  power  than  the  original  Telephone 
Commission  had  ever  been  allowed  to  exercise,  while 
the  conspicuous  supervisory  powers  (for  example, 
in  regard  to  rates  and  depreciation  charges)  were 
transferred  from  the  Minister  of  Telephones  and 
Telegraphs  to  the  Public  Utilities  Commissioner.8 
However,  the  Government  continued  to  retain  the 
inconspicuous  supervisory  power,  that  is,  the  power 
to  exert  influence  in  subtle  and  obscure  ways  to  make 
use  of  the  telephone  system  for  political  purposes; 
indeed,  unless  some  concrete  political  advantage  could 
be  derived  from  the  system,  the  Government  would 
have  regarded  the  enterprise  as  a  total  loss  politically 
—  as  a  political  liability  rather  than  as  a  political 
asset.  Nevertheless,  in  consequence  of  this  change, 
an  appreciable  improvement  may  be  assumed  to  have 
taken  place  in  the  relations  between  the  telephone 
system  and  the  Government;  it  is  certain  that  the 
feverish  energy  of  ineconomical  expansion  for  politi- 
cal ends  was  checked.  But  it  must  be  emphasized 

7  Journals  of  the  Legislative  Assembly  of  Manitoba,  Session  1912, 
p.  175. 

8  Cf .  An  Act  respecting  Public  Utilities,  to  create  a  Public  Utility 
Commission  and  to  prescribe  its  Powers  and  Duties.     The  Revised 
Statutes  of  Manitoba,  1913,  vol.  iii,  Chap.  166. 


REORGANIZED  119 

that  this  improvement  did  not  represent  any  delib- 
erate attempt  on  the  part  of  the  Government  toward 
a  belated  fulfillment  of  their  promise  of  commercial 
management;  on  the  contrary,  it  was  solely  a  conces- 
sion to  public  opinion,  a  concession  forced  by  the 
Government's  fear  of  the  political  consequences  of 
further  reckless  expenditure  and  brazen  mismanage- 
ment and  granted  only  to  a  degree  which  was  cal- 
culated to  appease  public  opinion.  Moreover,  it  is 
highly  significant  that  the  improved  conditions  were 
largely  due  to  the  ability  and  integrity  of  the  Public 
Utilities  Commissioner,  whose  personal  character 
and  career  inspired  the  public  with  confidence.  In 
other  words,  here  is  really  excellent  evidence  of  the 
fact  that,  in  the  conduct  of  public  utilities,  an  impar- 
tial and  efficient  regulatory  tribunal  —  or  even  indi- 
vidual —  secures  results  which  it  is  impossible  to  at- 
tain under  any  system  of  unregulated  political  con- 
trol. 

EXCHANGE   RATES  INCREASED;    PRIVATE   TELE- 
PHONE   COMPETITION   PREVENTED 

By  their  tactics  —  by  the  appointment  of  the  in- 
vestigating Commission,  by  the  resignation  of  the 
original  Telephone  Commission  and  by  the  widely 
advertised  "  reorganization  "  of  the  system  —  the 
Government  succeeded  in  their  purpose  of  allaying 
public  indignation.9  Consequently,  during  the  suc- 

9  This  result  was  also  partly  due  to  the  fact  that  the  wrath  of  the 


120      GOVERNMENT  TELEPHONES 

ceeding  years  there  is  relatively  little  documentary 
evidence  as  to  the  inside  workings  of  the  system;  in- 
deed, practically  the  sole  black  and  white  informa- 
tion consists  of  the  brief  annual  reports  of  the  Tele- 
phone Commissioner.  Moreover,  these  reports  of- 
fer little  assistance  to  the  analytical  investigator,  for 
they  are  essentially  political  documents ;  and  the  Gov- 
ernment met  attempts  to  go  behind  the  published 
returns  with  reluctance  and  with  evasion, —  the  best 
possible  evidence  that  all  the  workings  of  the  system 
were  not  able  to  stand  the  light  of  day. 

It  will  be  recalled  that  the  proposed  rate  schedule 
which  had  been  prepared  by  the  Telephone  Commis- 
sion in  December  1911,  and  which  was  based  largely 
on  measured  service,  had  been  quietly  killed  by  the 
Government.10  The  need  for  increased  revenue, 
however,  survived;  every  day  which  passed  under 
the  existing  rates  meant  a  further  step  toward  actual 
bankruptcy.  While  the  investigation  was  in  progress 
the  Government  lacked  the  audacity  to  submit  an- 
other rate  increase  to  the  public ;  but  the  investigation 
having  been  completed  and  a  "  reorganization  "  of 
the  system  having  been  announced,  the  time  was 
politically  ripe  for  effecting  a  general  increase  of 
rates.  pThe  suitability  of  the  occasion  was  not  lost 
upon  the  politicians  in  the  Government  and  on  July 

public  had  been  diverted  from  telephones  and  had  been  directed 
against  the  Government's  maladministration  of  the  publicly-owned 
grain  elevators. 
10  Cf.  p.  100,  supra. 


REORGANIZED  121 

25,  1912,  the  Telephone  Commissioner,  having 
secured  the  necessary  approval  of  the  Public  Utilities 
Commissioner,  issued  a  new  schedule  of  rates  appli- 
cable to  Winnipeg.  On  August  I3th  a  new  schedule 
of  rates  applicable  to  the  rest  of  the  Province  was 
issued.11 

These  new  schedules  provided  flat  (unlimited 
service)  rates  only  —  apparently  the  politicians 
wanted  nothing  further  to  do  with  measured  rates, 
however  equitable  such  rates  might  be.  In  Winni- 
peg, the  rate  for  individual  line,  business  service  (the 
only  class  of  business  service  which  the  new  Winni- 
peg schedule  offered)  was  raised  from  $50  to  $60  per 
year,  an  increase  of  20  per  cent.;  the  rate  for  indi- 
vidual line,  residence  service  was  raised  from  $25 
to  $30  per  year,  an  increase  of  20  per  cent. ;  and  the 
rate  for  two-party  line,  residence  service  was  raised 
from  $18  to  $25  per  year,  an  increase  of  39  per  cent. 
In  the  smaller  towns  and  in  the  rural  districts,  the 
increases  ranged  up  to  67  per  cent.  Even  the  Gov- 
ernment press  admitted  that  the  new  rates  involved 
"  considerable  "  increases!  12 

The  new  schedules  showed  an  arbitrary  treatment 
of  the  consumer  which  was  truly  Governmental.  In 
the  first  place,  the  recommendations  both  of  the  Win- 

11  First  Report  of  the  Public  Utilities  Commissioner  Manitoba  for 
the  Six  Months  ending  November  3Oth,  1912.     Sessional  Paper  No. 
n.     Sessional  Papers.    Legislative  Assembly  of  Manitoba.    Session 
1913,  pp.  546-556. 

12  The  Winnipeg  Telegram,  July  19,  1912. 


122       GOVERNMENT  TELEPHONES 

nipeg  Industrial  Bureau  and  of  the  Board  of  Trade  13 
were  silently  ignored.  In  the  second  place,  the 
schedules,  approved  and  promulgated  on  July  25th 
and  on  August  I3th,  were  retroactive,  becoming  ef- 
fective as  from  July  ist.  About  the  loth  of  July 
telephone  subscribers  received  the  following  circular : 

"A  bill  has  recently  been  sent  you  for  telephone  rentals. 
No  rates  have  as  yet  been  approved  by  the  public  utilities 
commissioner.  A  new  bill  will  be  sent  you  in  a  few  days."14 

During  the  first  half  of  July,  in  spite  of  the  fact  that 
bills  had  been  rendered,  subscribers  were  in  absolute 
ignorance  as  to  how  much  their  telephone  service  was 
costing  them. 

Contemporary  press  reports  throw  another  inter- 
esting and  significant  side-light  on  the  new  rates.  It 
appears  that,  immediately  after  these  rates  were  an- 
nounced to  the  public,  a  private  power  company  ap- 
plied to  the  City  Council  of  Winnipeg  for  permis- 
sion to  install  and  to  operate  a  telephone  system  in 
that  city,  the  representative  of  the  company  declar- 
ing that  "  the  matter  of  rates  had  been  fully  con- 
sidered "  and  that  "  the  company  had  decided  that  it 
could  give  private  residence  service  at  $20  per  year 
and  a  general  business  service  at  $40  per  year."  15 
In  other  words,  the  company  offered  to  cut  the  Gov- 
ernment rates  by  one-third.  Nevertheless,  when  the 

13  Cf.  pp.  93-94,  supra. 

14  The  Manitoba  Free  Press,  Winnipeg,  July  13,  1912. 

15  Cf.  the  Manitoba  Free  Press,  Winnipeg,  July  23,  1912. 


REORGANIZED  123 

company's  application  was  referred  to  the  Works 
Committee,  that  body,  although  conceding  the  merits 
of  the  proposal,  denied  the  application  on  the  ground 
that  "  it  would  be  poor  business  for  the  citizens  of 
Manitoba  to  allow  a  new  company  to  come  in  to  com- 
pete with  the  government  telephones."  16  As  the 
citizens  of  Manitoba  are  the  proprietors  of  the  Pro- 
vincial telephone  system,  it  certainly  would  have  been 
"  poor  business  "  for  them  to  have  had  to  enter  into 
competition  with  any  system  which  showed  prospects 
of  being  efficiently  and  economically  constructed  and 
operated! 

A  recommendation  contained  in  the  Telephone 
Commissioner's  report  on  the  "  reorganization  "  of 
the  system,  submitted  in  August  1912,  also  deserves 
attention.  According  to  the  newspapers,  "  it  was 
recommended  in  the  commissioner's  report  that  the 
construction  work  be  let  out  on  contract."  17  Being 
interpreted,  this  recommendation  is  an  open  admis- 
sion that  the  Government  could  secure  economy  by 
turning  their  construction  work  over  to  private  en- 
terprise.18 

16  The  Winnipeg  Telegram,  October  5,  1912. 

17  The  Manitoba  Free  Press,  Winnipeg,  August  24,  1912. 

18  It  is  interesting  to  note  that  the  annual  report  of  the  Postmaster 
General  of  the  United  States  for  the  fiscal  year  ended  June  30,  1914, 
contains  a  similar  recommendation.     In  this   report  Mr.  Burleson 
stated:     "There  can  be  no  question  as  to  the  one  outstanding,  self- 
evident  fact  that  the  identical  service  to  rural  mail  patrons  can  be 
maintained  at  this  time  with  a  saving  of  from  $15,000,000  to  $20,000,- 
ooo  per  annum,  and  it  is  earnestly  recommended  that  the  necessary 
legislation  for  placing  all  Rural  Delivery  Service  on  a  contract  basis 


i24      GOVERNMENT  TELEPHONES 

TELEPHONE  ACCOUNTS  STILL  DEFECTIVE;  A  REAL 
LOSS  OF  OVER  $2OO,OOO  IN  1912 

In  1912  the  fiscal  year  for  Provincial  Government 
departments  was  changed  to  close,  in  that  year  and 
thereafter,  on  November  3Oth,  instead  of  December 
3 1  st.  The  published  telephone  accounts  for  1912  19 
therefore  covered  only  eleven  months,  a  period  which 
included  six  months  under  the  original  Commission 
and  five  months  under  the  "  reorganized  "  adminis- 
tration. The  accounts  were  checked  and  summar- 
ized by  the  firm  of  chartered  accountants  who  had 
been  appointed  as  auditors  and,  as  might  be  expected, 
were  much  more  complete  and  intelligible  than  those 
in  former  years.  For  instance,  it  was  immediately 
noticeable  that  current  expenses  for  the  first  time 
included  a  depreciation  charge;  for  the  Government 
had  realized  that  they  could  no  longer  with  impunity 
violate  sound  accounting  principles  as  to  depreciation 
and  had  acceded  to  the  insistent  demands  of  the  Pub- 
lic Utilities  Commissioner  and  of  the  auditors  that  a 
reserve  to  meet  reconstruction  expenses  be  set  aside 
from  each  year's  revenue  beginning  with  1912. 
Consequently,  the  accounts  for  the  first  time  also 

be  enacted  in  order  that  the  people  may  receive  the  maximum  return 
for  the  minimum  expenditure  of  their  money."  Needless  to  say, 
Congress  refused  to  enact  the  "  necessary  legislation  "  which  would 
thus  enable  the  United  States  Post  Office  Department  to  save  from 
$15,000,000  to  $20,000,000  per  year  —  on  a  single  branch  of  the 
postal  service  —  by  utilizing  the  efficiency  of  private  labor. 

19  Fifth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ending  November  30th,  1912,  pp.  6-14. 


REORGANIZED  125 

showed  maintenance  expenses  as  a  separate  item,  all 
reconstruction  expenses  during  the  fiscal  year  having 
been  properly  met  from  the  depreciation  reserve 
which  had  been  set  aside  during  the  year.20 

In  spite  of  this  improvement  in  accounting 
methods,  however,  it  is  still  impossible  to  discover 
the  real  financial  outcome  of  the  year's  business  from 
the  published  accounts.  The  accounts  showed  a 
"balance"  of  revenue  of  $366,148;  but  interest 
charges  upon  telephone  capital  were  again  omitted. 
Moreover,  although  the  accounts  conformed  to  sound 
accounting  principles  in  that  a  depreciation  charge 
was  included  in  current  expenses,  yet  the  amount  of 
the  charge  ($126,000)  failed  to  conform  to  the  re- 
quirements of  the  best  engineering  experience  and 
was  quite  inadequate  to  provide  a  sufficient  reserve 
against  accrued  depreciation, —  a  fact  which  was 
pointed  out  by  the  auditors  21  and  admitted  by  the 
Telephone  Commissioner.22  Consequently,  it  is 
necessary  to  recast  the  accounts  by  increasing  the  de- 
preciation charge  to  a  sum  sufficient  to  provide  an 
adequate  reserve;  with  such  a  depreciation  charge 
and  with  the  inclusion  of  interest  charges,  the  ac- 
counts for  the  eleven  months  are  as  follows: 

20  Incidentally,  it  will  be  noted  that  the  method  of  dealing  with 
reconstruction  expenses  in  the  accounts  which  has  now  been  adopted 
by  the  Government  is  precisely  the  method  which  has  been  used  here 
in  recasting  the  telephone  accounts  in  the  preceding  years.     Cf.  pp. 
54-57,  supra. 

21  Fifth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ending  November  joth,  1912,  p.  13. 

MI  bid.,  p.  6. 


126       GOVERNMENT  TELEPHONES 

Gross  Revenue   $1,352,876 

Expenses : 

Operation    $584,823 

Maintenance    275,905 

Depreciation    405,891* 

Total    Expenses    ....  1,266,619 

Net  Earnings   ,. .  86,257 

Interest 3i4,7O523 

Deficit    $228,448 

*  Equivalent  to  6%  Of  plant  cost  at  the  end  of  the  preceding  year; 
adjusted  to  cover  eleven  months  only. 

It  is  clear,  then,  that  the  system  was  actually 
worked  at  a  greater  loss  during  the  fiscal  year  1912 
than  during  the  calendar  year  of  1911.  But  even 
this  result  is  too  favorable,  for  it  will  be  noted  that 
the  interest  charges  in  1912  were  considerably  less 
than  those  in  the  preceding  year :  owing  to  the  change 
in  the  date  of  the  closing  of  the  fiscal  year,  the  Public 
Accounts  included  only  six  months'  interest  upon  a 
considerable  amount  of  the  Provincial  bonded  in- 
debtedness incurred  for  telephone  purposes.24  If 
the  interest  charges  had  represented  the  whole 
amount  of  interest  accrued  upon  all  telephone  cap- 
ital during  the  eleven  months  included  in  the  fiscal 
year,  the  above  deficit  would  have  been  increased  by 
a  sum  of  about  $50,000.  Thus  the  accounts  offered 
the  mulcted  taxpayer  little  hope  of  relief;  but  since 

23  Sessional  Papers.    Legislative  Assembly  of  Manitoba.    Session 
p.  62. 


REORGANIZED  127 

the  increased  rates  had  been  in  force  only  during 
less  than  one-half  (five  months)  of  the  fiscal  period, 
the  full  effect  of  the  increase  could  not  be  expected 
until  the  next  year,  the  first  complete  year  under  the 
new  administration. 

INADEQUATE   PROVISION   AGAINST   DEPRECIATION; 

REAL  FINANCIAL  RESULT  IN   1913  AGAIN 

A  DEFICIT 

The  telephone  accounts  for  the  next  year,25  the 
twelve  months  ended  November  30,  1913,  were 
the  most  comprehensive  accounts  published  up  till 
that  time,  and  they  reflected  the  beneficial  influence 
of  the  Public  Utilities  Commissioner.  Interest 
charges  were  included  for  the  first  time  and  the  de- 
preciation charge  was  increased  to  $373,431  — with 
the  result  that  the  accounts,  instead  of  showing  a 
huge  credit  "  balance  "  as  in  former  years,  showed  a 
"  surplus"  of  only  $30,265,  of  which  $26,691  was 
set  aside  as  an  additional  reserve  against  deprecia- 
tion, leaving  a  credit  balance  of  only  $3,574.  The 
depreciation  charge  was  equivalent  to  the  estimated 
loss  in  value  due  to  the  depreciation  during  the  year 
of  the  plant  at  the  end  of  the  preceding  year,  the 
estimate  of  this  loss  in  value  being  based  upon  a  cal- 
culation of  the  "  average  life,  plus  cost  of  removal, 
less  salvage  "  of  each  of  the  principal  kinds  of  tele- 

25  Sixth  Annual  Report  of  Manitoba  Government  Telephones  for 
the  fiscal  year  ending  November  30th,  1913,  pp.  8-15. 


128       GOVERNMENT  TELEPHONES 

phone  plant.26  This  calculation  of  the  average  life 
of  the  various  kinds  of  plant,  however,  was  palpably 
erroneous  and  unscientific;  for  instance,  all  buildings 
were  entirely  omitted  from  the  calculation  —  al- 
though buildings  are  subject  to  deterioration  like 
other  kinds  of  plant  —  and  the  average  life  of  rural 
pole  lines  was  placed  at  twenty  years  despite  the 
abnormal  deterioration  to  which  such  lines  are  sub- 
ject in  view  of  the  "  extraordinary  weather  condi- 
tions "  27  in  Manitoba.  The  result  was  that  the  de- 
preciation charge  was  equivalent  to  only  4.2%  of 
the  book  value  of  the  total  plant,28  or  to  only  4.8% 
of  the  actual  plant  cost,  i.  e.  excluding  the  cost  of  in- 
tangibles and  the  maintenance  expenses  improperly 
charged  to  capital.29  It  is  clear,  therefore,  that  this 
charge  was  again  inadequate.30  When  an  adequate 

26  Report  of  the  Public  Utilities  Commission  for  the  fiscal  year 
ending  soth  November,  1913.     Sessional  Paper  No.  24.    Sessional 
Papers.    Legislative  Assembly  of  Manitoba.    Session  1914,  p.  822. 

27  Seventh  Annual  Report  of  the  Manitoba    Government   Tele- 
phones for  the  fiscal  year  ending  November  30!  h,  1914,  p.  14. 

28  The  charge  -was  equivalent  to  4.91%  of  the  book  value  of  such 
plant  as  was  taken  into  consideration  in  determining  the  charge. 

29  It  will  be  recalled  that  the  cost  of  intangibles  and  the  amount 
of  the  maintenance  expenses  charged  to  capital  was  determined  by 
a  subsequent  appraisal  of  the  plant  made  in  1915.     Cf.  p.  54,  supra. 

30  Although    the    Public    Utilities    Commissioner    approved    the 
amount  of  the  depreciation  charge,  yet  he  was  not  in  a  position  to 
express  an  opinion  as  to  its  adequacy.    Even  assuming  that  he  had 
an  independent  staff  of  telephone  engineers  to  advise  him,  which  he 
had  not,  there  could  be  no  indication  of  the  adequacy  of  any  depre- 
ciation charge  so  long  as  such  a  charge  was  based,  not  upon  the 
plant  cost,  but  upon  the  book  value  of  the  plant,  since  the  book 
value  of  the  plant  included  the  cost  of  intangibles  and  the  main- 
tenance  expenses  improperly  charged  to  capital   during  the  first 


REORGANIZED  129 

reserve  against  depreciation  is  provided,  the  accounts 
reveal  the  following  result: 

Gross  Revenue   :  $1,707,150 

Expenses : 

Operation $598,637 

Maintenance    297,842 

Depreciation    465,538* 

Total   Expenses    ....  1,362,017 

Net  Earnings   345,133 

Interest    406,975 

Deficit    $61,842 

*  Equivalent  to  6%  of  plant  cost  at  the  end  of  the  preceding  year. 

Although  the  real  financial  result  of  the  fiscal  year 
1913  was  thus  a  loss  of  at  least  $60,000,  neverthe- 
less this  result  was  a  great  improvement  over  the  re- 
sults in  1911  and  1912.  It  is  certain,  however,  that 
this  improvement  was  due  almost  solely  to  the  in- 
crease in  exchange  rates;  it  will  be  recalled  that  the 
new  rate  schedule  involved  increases  of  20  per  cent, 
and  upwards  and  thus  probably  brought  an  increase 
in  gross  revenue  of  approximately  $200,000  per  year. 
Indeed,  the  gross  revenue  from  exchange  service  dur- 
ing the  year  averaged  $31.75  per  telephone,  or  more 
than  the  corresponding  average  revenue  received  in 
1913  by  the  entire  Bell  Telephone  System  in  the 
United  States,  with  its  many  huge  exchanges ! 31 

three  years  of   Government  operation.     It  is   also  significant  that 
practically  all  of  the  year's  "  surplus "  was  set  aside  as  an  addi- 
tional  reserve   against  depreciation. 
31  Annual  Report  of  the  Directors  of  American  Telephone  and 


130       GOVERNMENT  TELEPHONES 

While  it  is  true  that  a  number  of  operating  and 
administrative  economies  were  effected  during  the 
year,  some  of  these  economies  were  in  reality  more 
detrimental  than  beneficial  to  the  service.  This  was 
especially  true  in  regard  to  the  economies  in  salaries 
and  wages  resulting  from  the  Government's  policy  of 
employing  cheap  labor.32  Although  the  adoption  of 
this  policy  was  possibly  due  to  the  fact  that  such 
economies  were  the  most  obvious  and  the  least  dan- 
gerous politically,  nevertheless  it  cannot  be  denied 
that  it  has  always  been  difficult  to  convince  the  rural 
voter  that  any  man  is  worth  a  salary  of  more  than 
$2,000  a  year.  Consequently,  although  the  Public 
Utilities  Commissioner  found  the  system  in  need  of 
technical  assistance  of  a  high  order,  he  was  forced  to 
take  the  position  that  the  expenses  of  the  employ- 
ment of  experts  should  be  saved.33  It  is  true,  as  in- 
dicated in  the  Annual  Report,34  that  some  increases 
in  employes'  wages,  especially  as  regards  the  schedule 
of  operators'  wages,  were  granted  in  1913 ;  but  these 
increases  were  largely  the  result  of  pressure  by  labor 

Telegraph  Company  to  the  Stockholders  for  the  year  ending  Decem- 
ber 31,  1913,  p.  13. 

32  For  example,  as  has  already  been  pointed  out,  the  Government 
endeavored  to  economize  by  reducing  the  salaries  attached  to  supe- 
rior positions.  Cf.  p.  117,  supra. 

83  First  Report  of  the  Public  Utilities  Commissioner  Manitoba  for 
the  Six  Months  ending  November  3Oth,  1912.  Sessional  Paper  No. 
it.  Sessional  Papers.  Legislative  Assembly  of  Manitoba.  Ses- 
sion 1913,  p.  481. 

34  Sixth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ending  November  30th,  1913,  p.  2. 


REORGANIZED  131 

organizations  and  by  no  means  eliminated  wage  dis- 
satisfaction. 

QUALITY   OF   SERVICE    UNSATISFACTORY 

The  Annual  Report  for  1913  contained  one  fea- 
ture which  will  probably  be  continued  in  future  re- 
ports, namely,  an  attempt  to  prove  by  statistics  that 
—  no  matter  what  the  experience  of  the  subscribers 
may  have  been  —  the  service  is  increasingly  satis- 
factory. For  instance,  the  Report  for  1913  stated: 

"  Throughout  the  Province,  exclusive  of  Winni- 
peg, 4,413  subscribers  were  personally  interviewed 
or  called  up  during  the  year,  with  results  as  follows : 

83.     per  cent,  reported  service  satisfactory; 
10.6  per  cent,  reported  service  fair; 
6.4  per  cent,  reported  service  unsatisfactory."35 

On  its  face  this  statement  has  a  wholesome  ring,  even 
though  it  admits  that  in  spite  of  the  "  reorganiza- 
tion "  of  the  system  the  Government  had  succeeded 
in  satisfying  only  83  out  of  every  100  customers,  cer- 
tainly not  an  enviable  commercial  record!  As  a 
matter  of  fact,  however,  the  statement  is  a  mere  po- 
litical device  for  disarming  obnoxious  criticism. 
Other  Governments  have  availed  themselves  of  the 
ingenuousness  of  statements  of  this  character  for 
similar  purposes. 

After  the  British  Post  Office  at  the  end  of  1911 

35  Sixth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ending  November  joth,  1913,  p.  2. 


132       GOVERNMENT  TELEPHONES 

had  acquired  a  monopoly  of  the  telephone  business 
in  the  United  Kingdom  by  purchasing  the  plant  of 
the  National  Telephone  Company,  the  public  con- 
tinually complained  that  the  service  as  operated  by 
the  Government  was  inferior  to  that  formerly  fur- 
nished by  the  Company.  In  replying  to  some  of 
these  complaints,  in  the  House  of  Commons  on  July 
3,  1914,  the  Postmaster  General  stated  that  the  Post 
Office  had  sent  out  inquiries  to  135,000  out  of  209,- 
ooo  subscribers  in  London,  with  the  result  that  87 
per  cent,  stated  that  they  were  perfectly  satisfied 
with  the  service  they  were  receiving  from  the  Govern- 
ment36 Upon  investigation  by  still  skeptical  critics 
and  customers,  however,  it  was  revealed  that  the 
"  inquiry  "  of  the  Post  Office  had  consisted  merely  of 
asking  the  subscriber  if  his  line  were  working  all 
right,  whereupon  those  subscribers  whose  lines  were 
not  at  that  particular  moment  out  of  order  naturally 
responded  in  the  affirmative,  and  were  recorded  as 
finding  the  service  satisfactory.37 

It  is  clear  that  any  inquiry  of  this  nature  offers 
countless  opportunities  for  manipulation,  to  the  end 
that  the  results  secured  may  be  favorable  to  the  con- 
tentions of  the  persons  conducting  the  inquiry;  and 
unless  the  good  faith  and  the  impartiality  of  the  in- 
quiry is  assured,  the  results  are  meaningless.  In 
the  case  of  the  Manitoba  Government  system,  the 

38  Parliamentary    Debates.    House    of    Commons.    Friday,    3rd 
July,  1914.     Official  Report.     Column   773. 
3T  The  Morning  Post,  London,  July  13,  1914. 


REORGANIZED  133 

above  statistical  statement  of  satisfactory  service 
must  be  read  in  the  light  of  a  record  of  some  of  the 
"  irregularities  "  experienced  by  the  Public  Utilities 
Commissioner  with  the  telephone  (Main  3024)  in 
his  own  office.  This  record  was  so  significant  that 
it  was  published  in  the  Report  of  the  Public  Utilities 
Commission  for  the  fiscal  year  1913  under  the  head- 
ing of  "  Partial  Record  of  Telephone."  The  Com- 
missioner's illuminating  experience  follows : 

"August  21,  1913. —  Main  3034  asked  for  three 
times ;  telephone  rang  and  I  was  asked  what  number 
I  wanted;  went  to  telephone  on  call  three  times,  party 
had  been  asking  for  number  of  National  Transcon- 
tinental, and  was  told  it  was  M.  3024. 

"  August  22,  1913. —  Main  3014  asked  for. 

"August  26,  1913. —  Main  3034  wanted;  called 
Main  3024. 

"September  i,  1913. —  'Phone  rang;  no  one  on 
the  line. 

"September  2,  1913. —  McMillan's  (M.  3034) 
'phone  again;  ditto  twice. 

"  September  4,  1913. —  Call  for  M.  3025. 

"  September  10,  1913, —  Twice  called  for  wrong 
'phone;  once  M.  2034,  once  M.  3034. 

"September  n,   1913. —  Called  for  Main  3034. 

"September  29,  1913. —  'Phone  rang,  no  one 
there. 

"  September  30,  1913. —  Cut  off  in  the  middle  of 
conversation  with  Mr. 


134       GOVERNMENT  TELEPHONES 

"October  i,  1913. —  Called  for  wrong  number, 
M.  3034;  ditto;  asked  for  M.  8091;  asked  for  Mc- 
Millan's number,  M.  3034;  wrong  number,  some 
person  wanted  M.  4034;  wrong  number  given 
again. 

"October  6,  1913. —  Called  for  Mr.  Wright; 
called  for  Standard  Trust. 

"October  8,   1913.— '  Is  Mr.  Elliott  there?  ' 

"October  9,  1913.— 'Is  that  Clark's?'  'Is 
that  McMillan's?  '  M.  3034  called. 

"October  16,  1913. —  Twice  rang  for  nothing. 
'  Is  that  M.  3034 ?  '  '  Is  that  Clark  &  Co.  ?  ' 

"October  21,   1913. —  M.  3034  wanted. 

"October  23,   1913. —  M.  3034  wanted. 

"  October  24,  1913. —  Called  for  M.  3824;  called 
for  M.  3034. 

"October  27,  1913. —  Called  for  M.  3025; 
called  for  M.  3034. 

"October  28,    1913. —  Called  for  Clark's;  ditto. 

"October  29,   1913. —  Called  for  wrong  'phone. 

"  November  10,  1913. — Bell  rang  twice;  girls  say 
1  Number?' 

"  November  n,   1913. —  Called  for  M.  3034. 

"November  14,   1913. —  '  Is  that  Clark's?  ' 

"November  18,   1913. —  Called  for  M.  3034. 

"  November  19,   1913. —  Asked  for  M.  3034. 

"November  22,  1913. —  Called  for  M.  3034; 
called  for  M.  3025 ;  called  for  McMillan's. 

"November  24,  1913. —  Called  for  Mr.  Miller. 


REORGANIZED  135 

"  November  25,  1913.—  '  Is  that  Clark's?  '  (M. 
8024). 

".November  28,  1913. —  Called  for  M.  3034. 

"  November  29,  1913. —  Called  for  M.  3034. 

"  December  8,  1913. —  Twice  called  for  McMil- 
lan's (M.  3024);  once  for  J.  D.  Clark's  (M. 
8024). 

"December  13,  1913. —  Called  for  McMillan's; 
I  asked  for  Sher.  1489,  got  the  Winnipeg  Brewery; 
called  for  M.  3034. 

"December  15,  1913. —  Asked  for  Sher.  1489 
and  got  wrong  number ;  then  when  got  the  right  num- 
ber cut  off  in  conversation. 

"December  22,   1913. —  Twice    called    for    M. 

3034. 

"December  23,   1913. —  Called  for  M.  3034. 

"December  27,   1913. —  Called  for  M.  3034. 

"December  30,   1913. —  Called  for  M.  3025. 

"December  31,   1913. —  Called  for  M.  3034. 

"January  2,  1914. —  Called  for  M.  3034;  called 
for  M.  3034. 

"  January  7,   1914. —  Bell  rang,  no  call. 

"  January  10,  1914. —  Called  for  M.  3034. 

"January  12,   1914. —  Called  for  M.  3014. 

"January   12,   1914. —  Called  for  M.  3034. 

"January  14,  1914. —  Called  for  M.  3025. "38 

38  Report  of  the  Public  Utilities  Commission  for  the  fiscal  year 
ending  $oth  November,  1913.  Sessional  Paper  No.  24.  Sessional 
Papers.  Legislative  Assembly  of  Manitoba.  Session  1914,  p.  839. 


136       GOVERNMENT  TELEPHONES 

MORE  ADMINISTRATIVE   REFORMS,  WITH  EXTENSION 

OF    GOVERNMENT    CONTROL;    ACCOUNTS    SHEW 

ANOTHER  DEFICIT  IN  1914  AND  IMPROPER 

USE  OF  TELEPHONE  FUNDS 

LThe  following  year,  the  fiscal  year  ended  Novem- 
ber 30,  1914,  was  the  seventh  year  of  Government 
ownership  and  operation  of  telephones.  It  also 
marked  the  beginning  of  a  period  of  depression. 
The  crop  of  1913  in  the  prairie  Provinces  had  been 
unsatisfactory,  immigration  had  fallen  off  and  even 
the  towns  had  begun  to  react  after  the  decade  of 
prosperity  they  had  experienced.  The  harvest  of 
1914  was  again  short,  immigration  practically  ceased, 
and  in  August  the  outbreak  of  the  war  found  Man- 
itoba in  a  precarious  financial  condition.  The  Pro- 
vincial Government  had  exercised  their  borrowing 
powers  freely,  there  had  been  continuous  speculation 
in  both  rural  and  urban  land  for  several  years  and 
the  anticipated  expansion  of  production  had  not 
taken  place.  The  new  transcontinental  railroad  lines 
were  approaching  completion  and  the  stimulus  to 
trade  which  the  construction  period  had  involved, 
had  passed  away.  There  would  undoubtedly  have 
been  a  period  of  depression  in  the  Northwest,  even 
if  the  war  had  not  taken  place.39 

The  Annual  Report  of  the  Government  Tele- 
phones for  the  fiscal  year  was  not  issued  until  August 

39  Cf.  The  Canada  Year  Book  1914,  Ottawa  1915. 


REORGANIZED  137 

1915.  Although  the  Report  made  no  mention  of 
any  proposed  administrative  change,  the  Report  of 
the  Public  Utilities  Commission  showed  that  further 
reorganization  of  the  system  was  contemplated.  In 
the  latter  Report  the  Public  Utilities  Commissioner 
wrote :  '  The  present  telephone  management  hav- 
ing reached  a  stage  of  operation  at  which  it  seems 
advantageous  to  do  so,  there  is  being  formulated  a 
code  of  organization  such  as  is  in  use  in  large  tele- 
phone enterprises,  but  adapted  to  these  conditions. 
This  is  for  the  guidance  of  the  higher  officials  and  to 
systematize  the  work."  40  Although  this  statement 
gives  no  indication  of  the  nature  of  the  reorganiza- 
tion to  be  effected,  it  is  clear  that  the  administration 
of  the  system  has  been  in  a  state  of  constant  change, 
—  a  condition  which  in  itself  must  have  precluded 
efficiency. 

In  regard  to  the  telephone  accounts  for  the  year,41 
it  is  immediately  noticeable  that  the  endorsement  of 
the  chartered  accountants  who  had  audited  the  ac- 
counts for  1912  and  1913  is  lacking.  In  the  An- 
nual Report  of  the  Government  Telephones  no  ex- 
planation is  offered  as  to  this  apparent  absence  of 
audit;  the  reason,  however,  is  given  in  the  following 
extract  from  the  Report  of  the  Public  Utilities  Com- 

40  Third  Annual  Report  of  the  Manitoba  Public  Utilities  Com- 
mission for  the  year  ending  November  30th,  1914,  p.  4. 

41  Seventh   Annual  Report   of  the  Manitoba    Government   Tele- 
phones for  the  fiscal  year  ending  November  30tht  1914.,  pp.  3-4, 
14-19. 


138       GOVERNMENT  TELEPHONES 

missioner :  4  The  method  of  reporting  the  audit, 
both  monthly  and  annually,  was  changed  in  1914. 
Until  recently  the  auditors  reported  to  the  Commis- 
sioner of  Telephones,  and  held  their  appointments 
from  him.  It  was  decided  that  that  appointment 
should  be  by  the  Government,  and  the  monthly  and 
annual  reports  made  to  the  Provincial  Treasurer. 
That  course  is  now  being  followed. " 42  In  other 
words,  the  Government  had  taken  back  much  of  the 
control  over  the  telephone  finances  which  it  had  been 
necessary  for  it  to  yield  at  the  time  of  the  "  reorgan- 
ization "  in  1912:  the  reports  and  recommendations 
of  the  auditors  could  easily  be  ignored  or  suppressed. 
Although  the  power  which  the  Government  had  been 
obliged  to  surrender  in  1912  was,  all  things  consid- 
ered, not  very  great  (for  the  power  to  exert  influ- 
ence for  political  purposes  they  had  never  given  up) , 
nevertheless  no  further  evidence  is  necessary  to  prove 
that  the  Government  had  begun  to  manoeuvre  with 
the  object  of  ultimately  recovering  every  possible 
vestige  of  the  power  over  the  system  which  had  been 
theirs  during  the  first  four  years  of  Government 
operation. 

Except  for  the  absence  of  the  auditors'  certificate, 
the  accounts  for  1914  were  similar  in  form  to  those 
for  1913  —  and  they  showed  about  the  same  result. 
After  the  deduction  of  interest  charges  and  a  depre- 

42  Third  Annual  Report  of  the  Manitoba  Public  Utilities  Com- 
mission for  the  fiscal  year  ending  November  30th,  1914,  p-  4. 


REORGANIZED  139 

elation  charge  of  $409,536,  there  was  a  "  surplus  " 
of  $56,067,  of  which  $54,824  was  set  aside  as  an 
additional  reserve  against  depreciation,  leaving  a 
credit  "balance"  of  $1,243.  The  depreciation 
charge,  too,  was  based  upon  precisely  the  same  er- 
roneous and  unscientific  calculations  as  in  1913  43 
and,  being  equivalent  to  only  4.8%  of  the  plant  cost 
at  the  end  of  the  preceding  year,  was  inadequate  to 
precisely  the  same  degree.  When  the  depreciation 
charge  is  increased  to  an  amount  sufficient  to  pro- 
vide an  adequate  contribution  to  the  depreciation  re- 
serve, the  accounts  stand  thus: 

Gross  Revenue   $1,824,115 

Expenses : 

Operation $621,033 

Maintenance    3I5>797 

Depreciation    509,179* 

Total  Expenses 1,446,009 

Net  Earnings    378,106 

Interest    421,682 

Deficit    $43,576 

*  Equivalent  to  6%  of  plant  cost  at  the  end  of  the  preceding  year. 

Although  this  loss  of  at  least  $40,000  was  —  un- 
fortunately for  the  taxpayer  —  highly  unsatisfac- 
tory, yet  it  was  a  slight  improvement  over  the  result 
in  1913.  However,  inasmuch  as  gross  revenue  from 
exchange  service  during  the  year  increased  to  an 
average  of  $32.00  per  telephone,  it  is  apparent  that 

43  Cf.  pp.  127-128,  supra. 


140      GOVERNMENT  TELEPHONES 

the  financial  improvement  was  again  due,  not  to 
economies  or  efficiencies  in  operation,  but  almost 
solely  to  increased  revenue  secured  from  subscribers. 
Since,  however,  the  average  revenue  from  exchange 
service  is  already  at  the  maximum  possible  under  the 
present  rates,  the  evidences  of  Governmental  ex- 
travagance and  inefficiency  which  are  revealed  upon 
a  close  examination  of  the  accounts  cannot  much 
longer  be  concealed  from  the  public  unless  there  is 
another  substantial  increase  in  rates.  In  the  future, 
analysis  of  the  accounts  may  be  expected  to  show 
that  the  system  is  actually  losing  more  and  more  each 
year. 

One  statement  in  the  Annual  Report  for  1914  is 
highly  significant.  Referring  to  reconstruction  ex- 
penses, the  Telephone  Commissioner  wrote :  "  As 
the  age  of  the  telephone  plant  is  extended  it  will  be 
found  that  the  expenditure  on  account  of  renewals 
and  reconstruction  of  the  plant,  due  to  extraordinary 
weather  conditions,  obsolescence  and  inadequacy,  will 
increase  accordingly."  44  These  words  give  what- 
ever confirmation  is  needed  of  the  existence  of  ex- 
traordinary weather  conditions,  that  is,  conditions 
which  should  properly  require  extraordinary  de- 
preciation reserves.  The  statement  also  implies  that 
extraordinary  depreciation  should  have  been  pro- 
vided for  year  by  year  and  an  adequate  reserve  built 

44  Seventh   Annual  Report   of  the  Manitoba   Government   Tele- 
phones for  the  fiscal  year  ending  November  30th,  1914,  p.  14. 


REORGANIZED  141 

up  to  meet  it.  This  policy  was  of  course  not 
adopted  nor  is  it  adopted  now.  In  view  of  these 
conditions  there  can  be  no  question  that  an  annual 
depreciation  charge  equivalent  to  6  per  cent,  of  plant 
cost  at  the  end  of  the  preceding  year  is  certainly  a 
distinctly  moderate  provision  against  reconstruction 
requirements.  Indeed,  a  sound  policy  in  respect  to 
extraordinary  depreciation  due  to  the  climatic  con- 
ditions of  Manitoba  would  demand  an  increase  in 
the  annual  depreciation  charge  over  and  above  6 
per  cent.  An  annual  depreciation  charge  of  6  per 
cent,  has  been  used  here  in  recasting  the  accounts 
merely  to  avoid  even  the  appearance  of  an  exaggera- 
tion of  the  real  losses  of  the  Government  system. 
Since  the  plant  costs  upon  which  the  depreciation 
charges  have  been  based  have  also  been  understated 
rather  than  overstated,45  there  can  therefore  be  no 
question  that  the  aggregate  losses  during  the  seven 
years  of  Government  operation  were  at  least  $650,- 
ooo.  These  losses,  too,  were  incurred  from  a  sys- 
tem which  included  fewer  telephones  than  there  are 
in  either  of  the  single  cities  of  Toronto,  Ontario,46  or 
Milwaukee,  Wisconsin.47 

According  to  the  Annual  Report,  the  unexpended 
depreciation  reserves  deposited  with  the  Provincial 
Treasurer  at  the  end  of  1914  amounted  to  the  sum 

45  Cf.  pp.  152-154,  infra. 

46  The  Toronto  World,  January  9,  1916. 

47  The  Milwaukee  Sentinel,  June  17,  1915. 


142       GOVERNMENT  TELEPHONES 

of  $73 1, 5 1 5. 48  Now,  although  this  sum  was  an  ab- 
surdly inadequate  reserve,  nevertheless  it  had  been 
large  enough  to  attract  the  attention  of  the  members 
of  the  Government.  It  seems  that  the  total  of  the 
trust  funds  (which  included  the  unexpended  deprecia- 
tion reserves  of  the  telephone  system)  in  the  hands 
of  the  Government  at  November  30,  1914,  was  $i,- 
514,231.77  in  nominal  cash,  but  that  only  $150,529 
of  these  funds  was  in  actual  cash.49  In  order  to  con- 
ceal this  discrepancy  between  nominal  cash  and  actual 
cash  it  further  appears  that  the  Government  bor- 
rowed from  the  bank,  by  means  of  an  overdraft,  the 
balance  between  these  two  sums,  viz.,  $1,363,702.- 
77.BO  This  transaction  was  clearly  a  piece  of  "  win- 
dow dressing,"  the  plain  fact  being  that  the  trust 
funds,  including  the  telephone  reserves,  had  been 
used  for  the  current  expenses  of  the  Province. 

In  any  discussion  of  the  finances  of  the  Manitoba 
telephone  system,  considerable  emphasis  must  be  laid 
on  the  far-reaching  effects,  especially  in  a  period  of 
depression,  of  the  existence  of  this  burdensome  Gov- 
ernment ownership  and  operation  instead  of  efficient 
private  operation  constantly  contributing  to  the  pub- 
lic purse  in  the  form  of  taxes. 

There  can  be  no  doubt  that  the  addition  to  the 

48  Seventh  Annual  Report  of  the  Manitoba   Government   Tele- 
pones  for  the  fiscal  year  ending  November  3Oth,  1914,  p.  14. 

49  Sessional  Paper  No.  i.     Sessional  Papers.    Legislative  Assem- 
bly of  Manitoba.     Session  1915,  pp.  8  and  17. 

50  Ibid.,  p.  5.     Cf.  also  the  Manitoba  Free  Press,  Winnipeg,  Feb- 
ruary 25,  1915. 


REORGANIZED  143 

Provincial  debt  of  the  indebtedness  incurred  for  tel- 
ephone purposes  and  the  extravagant  way  in  which 
the  telephone  funds  have  been  expended,  have 
seriously  compromised  the  credit  of  the  Province. 
This  result  would  have  occurred  even  in  normal 
times,  traces  of  it  were  noticeable  prior  to  1914. 
The  ultimate  reactions  of  the  financial  difficulties  into 
which  the  Province  has  fallen  as  a  result  of  experi- 
ments in  public  ownership,  can  only  be  a  matter  for 
conjecture;  but  in  any  case,  it  would  appear  that  the 
progress  of  Manitoba  must  be  seriously  retarded, 
while  during  the  immediate  future  the  Province  will 
be  unable  to  extend  its  governmental  activities  even 
in  advisable  directions,  will  be  forced  to  curtail  ex- 
penditure on  telephone  construction  still  more,  and 
may  be  involved  in  difficulty  in  procuring  funds  for 
other  necessary  and  urgent  purposes.51 

THE  TELEPHONE  MANAGEMENT  A  CAMPAIGN  ISSUE ; 

EXTENSION  OF  TELEPHONE  SERVICE  LESS  THAN 

THAT    IN    THE    UNITED    STATES;    THE 

PASSING    OF    THE    GOVERNMENT 

The  summer  of  1914  saw  a  closely  contested  gen- 
eral election  and  in  the  bitter  campaign  which  pre- 
ceded it,  the  management  of  the  telephone  system 
was  one  of  the  chief  bones  of  contention,  as  was  to 
be  expected.  The  Opposition  raked  the  entire  his- 
tory of  the  enterprise  over  the  coals,  illuminating 

51  Cf.  p.  32,  supra. 


i44      GOVERNMENT  TELEPHONES 

with  perfervid  invective  the  painful  contrast  between 
promise  and  performance.  '*  The  people  of  Man- 
itoba," cried  the  Opposition,  "  are  not  getting  as 
promised  a  better  service  at  half  the  rates  charged 
by  the  Bell.  The  prices  have  been  increased  very 
Considerably.  The  inability  of  the  Government  to 
keep  its  pledges  ...  is  the  result  chiefly  of  over- 
capitalization .  .  .  wasteful  construction  methods 
and  inefficient  administration,  the  direct  consequence 
of  persistent  manipulation  of  the  system  in  the  inter- 
est of  the  Government  machine."  52  The  Opposition 
press  was  filled  with  varied  charges  of  political  ma- 
nipulation, favoritism,  incompetence  and  graft  in 
the  administration  of  the  system;  particularly  bitter 
was  the  charge  that  the  Government  were  making 
use  of  the  system  in  every  way  (for  example,  by  hav- 
ing employees  working  at  a  distance  transported  to 
their  respective  polling  places  at  the  expense  of  the 
Province53)  in  order  to  "swing"  the  election  to 
their  own  party. 

In  view  of  the  fact  that  irrefutable  proof  of  the 
accuracy  of  many  of  the  charges  of  the  Opposition 
was  public  property,  the  Government  candidates  were 
hard  pressed  for  adequate  rebuttal.  Indeed,  in  a 
number  of  instances  they  more  or  less  frankly  ad- 
mitted that  the  Government  had  made  "  mistakes  " 
in  their  telephone  policy  and  were  unable  to  fulfill 

52  Liberal  Handbook  1914,  p.  94. 

53  Cf.  the  Manitoba  Free  Press,  Winnipeg,  July  2,  1914. 


REORGANIZED  145 

their  promises.54  Other  candidates  spoke  vaguely 
about  "  splendid  "  service  and  expatiated  upon  the 
theoretical  advantages  of  public  ownership  as  com- 
pared with  alleged  "  extortions "  of  private  cap- 
ital.55 Some  "  pointed  with  pride  "  to  the  extension 
of  the  service  into  the  rural  districts.  Almost  the 
only  defence  of  the  rates  which  they  devised,  how- 
ever, was  comprised  in  statements  to  the  effect  that 
"  the  'phones  of  the  province  did  not  cost  as  much 
per  'phone  as  the  'phones  in  the  provinces  to  the 
west  "  56  (where  there  is  also  public  ownership)  and 
that  telephone  rates  in  New  York  City  were  higher 
than  those  in  Winnipeg 57  —  this  latter  statement 
being  meaningless  in  view  of  the  fact  that  the  Gov- 
ernment had  learned,  to  their  sorrow,  that  unit  costs 
increase  with  the  number  of  telephones  in  an  ex- 
change. Of  course,  in  such  a  maze  of  charge  and 
counter-charge,  it  is  quite  impossible  to  determine 
where  the  exact  truth  lies.  It  is  inconceivable  that 
the  Opposition  did  not  magnify  their  charges  of 
political  manipulation,  of  inefficiency,  and  of  graft; 
but  that  there  existed  considerable  foundation  for 
such  charges  cannot  be  denied.  As  to  rates,  the 
Government  themselves  admitted  their  failure  to  re- 
deem their  promises. 

There  is,  however,  one  defence  of  the  Provincial 

54  Cf.  the  Manitoba  Free  Press,  Winnipeg,  July  8,  1914. 

55  Cf.  The  Evening  Telegram,  Winnipeg,  July  8,  1914. 

56  The  Evening  Telegram,  Winnipeg,  July  7,  1914. 

57  Cf.  the  Free  Press  News  Bulletin,  Winnipeg,  July  8,  1914. 


146      GOVERNMENT  TELEPHONES 

telephone  system  which  the  then  Government  party 
always  pleaded  in  extenuation  of  all  their  sins.  This 
defence  is  the  Government's  record  in  extending  the 
system,  for  whereas  the  system  comprised  only  some 
14,000  telephones  at  the  time  of  its  acquisition  from 
the  Bell  Company  in  January  1908,  at  the  end  of 
1914  it  included  some  46,000  telephones.58  Dur- 
ing a  period  of  seven  years  the  Government  had 
added  32,000  telephones  and  had  more  than  tripled 
the  size  of  the  system.  Although  the  fact  that  po- 
litical rather  than  social  motives  impelled  this  ex- 
tension detracts  a  certain  amount  of  glory  from  the 
achievement,  nevertheless  it  is  quite  true  that  the  de- 
velopment secured  by  the  Government  is  highly  cred- 
itable. But  the  allegations  and  insinuations  of  the 
adherents  of  the  Government  to  the  effect  that  this 
extension  would  never  have  been  secured  under  any 
regime  of  unrestricted  private  enterprise  are  utterly 
unjustifiable,  for  there  is  not  a  scrap  of  evidence  to 
warrant  any  conclusion  that  private  initiative  would 
not  have  developed  the  service  to  a  similar  extent. 
In  the  first  place,  as  has  already  been  pointed  out,  it 
must  be  remembered  that  the  Bell  Company  had 
borne  all  the  burdens  and  assumed  all  the  risks  of 
the  pioneer,  that  it  had  gone  into  Manitoba  at  a  time 
when  there  were  only  some  60,000  people  in  the  en- 
tire Province,  when  the  population  of  Winnipeg  was 

58  Seventh  Annual  Report   of  the  Manitoba   Government   Tele- 
phones for  the  fiscal  year  ending  November  30th,  1914,  p.  8. 


REORGANIZED  147 

only  8,000  and  when  Brandon  and  Portage  la  Prairie 
were  mere  villages.59  The  service  which  the  com- 
pany initiated  at  that  time  it  nurtured  through  all  the 
successive  periods  of  hardship  and  depression  until 
a  substantial  business  had  been  developed.  The 
Manitoba  Government,  therefore,  merely  took  over 
an  established  business  and  took  it  over  in  a  period 
of  expansion  and  prosperity  which  the  Bell  Company 
had  anticipated  and  prepared  for.60  Consequently, 
it  is  apparent  that  as  regards  physical  extension,  no 
proper  comparison  can  be  made  between  the  record 
of  the  Bell  Company  and  the  record  of  the  Govern- 
ment. The  only  possible  comparison  which  can  be 
made  is  between  the  record  of  the  Government  in 
Manitoba  and  the  record  of  private  enterprise  in 
similar  communities  in  the  United  States,  that  is,  in 
communities  with  large  farming  populations.61  A 
glance  at  the  telephone  history  of  the  United  States, 
as  shown  by  the  statistics  published  by  the  Bureau  of 
the  Census  at  Washington,  suffices  to  show  that  the 
progress  made  by  the  Manitoba  Government  is  by  no 
means  unusual  under  private  management,  while  as 
regards  the  present  development  of  the  service,  the 
development  in  Manitoba  is  considerably  exceeded 
by  that  in  the  States  of  the  Union  which  are  most 

59  Cf.  p.  13,  supra. 

60  Cf.  pp.  26-28,  supra. 

61  Comparisons  with  the  Provinces  of  Alberta  and  Saskatchewan, 
the  only  similar  Canadian  communities,  are  unfortunately  impossi- 
ble,   as   public   ownership   of   telephones   obtains   in   both   of   these 
Provinces  as  well  as  in  Manitoba. 


148       GOVERNMENT  TELEPHONES 

analogous  to  the  Canadian  Northwest.  According 
to  statistics  prepared  by  the  Government,  at  the  end 
of  1914  the  total  number  of  telephones  in  the  Prov- 
ince of  Manitoba  was  equivalent  to  an  average  of  95 
telephones  per  1,000  population;  62  according  to  the 
statistics  of  the  United  States  Bureau  of  the  Census 
the  number  of  telephones  in  Illinois  and  in  Iowa,  the 
greatest  farming  States  of  the  Union,  were  respec- 
tively equivalent  to  139  and  to  171  telephones  per 
1,000  population,  while  in  Kansas,  the  great  wheat 
State,  and  in  Minnesota,  the  great  barley  State,  the 
corresponding  averages  were  141  and  127  telephones 
per  1,000  population.63  In  other  words,  in  com- 
munities which  are  very  similar  in  their  economic  and 
social  aspects,  the  development  of  the  telephone  serv- 
ice is  from  34  per  cent,  to  80  per  cent,  greater  under 
private  ownership  than  under  public  ownership.04 
Such  official  statistics  effectually  dispose  of  any  con- 
tention that  unrestricted  private  enterprise  could  not, 
and  would  not,  have  secured  in  Manitoba  as  great  a 
degree  of  telephone  development  as  has  been  secured 
under  Government  control. 

The  general  election  of  1914  again  returned  the 

62  The  Manitoba  Free  Press,  Winnipeg,  February  20,  1915. 

63  Telephones  and  Telegraphs  and  Municipal  Electric  Fire-Alarm 
and  Police-Patrol  Signaling  Systems.     Department   of    Commerce. 
Bureau   of  the  Census.     Washington   1915.     Pages   15-16. 

64  Incidentally,  the  U.  S.  Census  telephone  statistics,  which  are  the 
latest  available  figures,  are  for  the  year  1912,  whereas  the  telephone 
development  throughout  the    United   States   considerably  increased 
during    1913    and    1914.     The    above    percentages,    therefore,    are 
really  too  favorable  to  the  Manitoba  system. 


REORGANIZED  149 

Government  to  office.  But  only  a  narrow  margin 
separated  the  victors  from  the  vanquished  and  it  was 
abundantly  clear  that  the  Government  were  rapidly 
losing  prestige  even  in  the  rural  districts.  The  mis- 
deeds of  the  Government  and  the  failure  of  their 
ventures  in  public  ownership  had  been  proved  costly 
and  were  destined  to  prove  fatal,  for  so  strong  grew 
the  Opposition  that  in  the  spring  of  the  year  1915 
the  Government  was  forced  to  appoint  a  Royal 
Commission  to  investigate  the  charges  against  the 
administration.  The  Oppositon  had  prepared  their 
case  well  and  the  evidence  before  the  Commission 
soon  revealed  not  only  incompetence  and  inefficiency, 
but  led  to  the  prosecution  of  the  Cabinet  Ministers 
in  the  criminal  courts  for  fraud.  Before  long  the 
accumulation  of  testimony  and  proof  was  such  as  to 
shake  the  nerve  of  even  the  most  hardened  politician. 
The  Premier  and  his  colleagues  decided  to  resign 
and,  in  May  1915,  they  surrendered  the  Government 
to  their  political  opponents  without  an  election.65 

This  change  of  political  masters  marks  the  end  of 
what  may  be  termed  the  second  phase  of  the  history 
of  the  Manitoba  Government  telephone  system. 
During  the  three  years  comprised  in  the  period,  there 
is  less  spectacular  evidence  of  the  political  influence 
with  which  the  system  was  inevitably  surrounded. 
The  Government  realized  that  the  whitewash  ap- 

65  In  order  to  assure  themselves  of  popular  support,  the  new 
Government  subsequently  (in  August)  held  a  special  general  elec- 
tion, at  which  they  were  continued  in  office. 


150       GOVERNMENT  TELEPHONES 

plied  by  the  Royal  Commission  would  serve  to  de- 
ceive only  the  more  credulous  among  the  voters. 
For  publicity  purposes,  therefore,  the  Government 
went  through  the  motions  of  a  "  reform."  As  a 
reluctant  but  necessary  concession  to  public  opinion, 
they  relegated  a  certain  amount  of  regulatory  power, 
largely  innocuous,  to  the  Public  Utilities  Commis- 
sioner. The  chief  feature  of  the  period,  however, 
was  that  the  Government,  having  interpreted  the 
political  handwriting  on  the  wall,  became  even  more 
elaborate  in  their  pretenses  and  even  more  subtle  in 
their  manipulations,  though  they  openly  maintained 
their  arbitrary  attitude  toward  the  consumer.  The 
violation  of  their  pledges  continued.  The  promises 
as  to  rates  were  repudiated  and  the  "  exorbitant  " 
rates  of  the  former  Bell  Company  were  exceeded; 
political  control  continued  to  preclude  the  possibility 
of  commercial  management;  and  the  ownership  and 
operation  of  the  system  continued  to  be  a  burden  on 
the  finances  and  credit  of  the  Province. 

SYSTEM     USED    FOR    POLITICAL    PURPOSES    BY    THE 

NEW  GOVERNMENT;  AN  AGGREGATE   LOSS 

OF  $I,OOO,OOO 

At  the  time  of  writing  the  new  Government  have 
not  been  in  power  long  enough  to  permit  a  critical 
review  of  their  policies  and  performances  to  be  un- 
dertaken; and  the  public  mind  has  been  so  intent 
upon  the  world  conflict  that  printed  information  as 


REORGANIZED  151 

to  the  telephone  system  is  relatively  meagre.  Short 
as  has  been  the  tenure  of  office  of  the  present  Gov- 
ernment, however,  certain  of  their  acts  and  certain 
of  the  immediate  results  of  their  administration  are 
nevertheless  significant  as  unmistakable  auguries  of 
their  future  relations  with  the  telephone  system. 

In  the  first  place  it  will  be  recalled  that  the  politi- 
cal partisans  of  the  new  Government  had  always 
contended  that  the  price  paid  for  the  Bell  plant  had 
been  excessive.66  Immediately  upon  assuming  the 
reins  of  power  in  May,  1915,  the  Government 
sought  to  substantiate  this  claim;  and  for  this  purpose 
the  Attorney-General  in  the  Provincial  Cabinet  "  re- 
quested a  statement  showing  the  plant  valuation  of 
the  Manitoba  Government  Telephones."  67  In  pur- 
suance of  this  "  request,"  officials  of  the  telephone 
system  made  a  valuation  of  the  plant  and  submitted 
a  report  of  their  findings  under  date  of  June  23rd. 
"  Complying  with  instructions,"  says  this  report,  "  we 
have  compiled  unit  costs  of  all  plant  additions  made 
during  the  period  from  January  ist,  1908,  to  No- 
vember 3Oth,  1914,  and,  by  applying  these  unit  costs 
to  the  plant  as  purchased,68  find  the  construction  costs 
of  total  plant  to  be  $1,138,568  less  than  stated  in  the 
last  annual  report.69  Of  this  amount  $802,336  per- 

66  Cf.  pp.  29  and  94-95,  supra. 

67  The  Tribune,  Winnipeg,  July  5,  1915. 

68  "  The  plant  as  purchased  "  evidently  means  the  total  plant  at 
November  30,  1914. 

69  Viz.,  Seventh  Annual  Report  of  the  Manitoba  Government  Tel- 
ephones for  the  fiscal  year  ending  November  3Oth,  1914. 


152       GOVERNMENT  TELEPHONES 

tains  to  the  original  purchase,70  and  the  remainder 
consists  of  amounts  charged  to  construction,  but 
properly  chargeable  to  maintenance,  during  the  three 
years  following  the  purchase."  71 

That  this  hasty  and  unscientific  valuation  —  a  val- 
uation on  the  basis  neither  of  original  cost  nor  of 
cost  of  reproduction  new  —  was  undertaken  largely 
for  political  purposes,  is  clear;  for  if  the  object  of 
the  valuation  had  been  merely  to  measure  the  excess 
of  the  book  value  of  the  plant  over  its  original  cost 
(or  over  its  cost  of  reproduction  new)  at  the  time 
when  the  present  Government  had  assumed  control 
of  the  system,  it  would(have  been  unnecessary  to  de- 
vote either  the  time  or  the  money  to  estimating  the 
construction  cost  of  the  portion  of  the  plan  acquired 
from  the  Bell  Company  seven  years  before.72  The 
portent  of  this  appraisal  is  ominous:  efficiency  and 
economy  will  apparently  always  be  subordinated  to 
political  advantage. 

As  the  valuation  was  unscientifically  based  upon 
the  "  unit  costs  of  all  plant  additions  made  during  the 
period  from  January  ist,  1908,  to  November  3Oth, 
1914,"  it  is  clear  that  the  figure  of  $1,138,568  in 
the  appraisal  report  cannot  be  an  accurate  measure- 

70  I.  e.  the  purchase  of  the  Bell  plant. 

71  This  appraisal  report  was  subsequently  printed  in  Eighth  An- 
nual Report  of  the  Manitoba  Government  Telephones  for  the  fiscal 
year  ended  November  30th,  1915,  pp.  4-5. 

72  An  estimate  of  the  construction  cost  of  the  Bell  plant  was  of 
course  necessary  to  determine  the  portion  of  the  excess  of  book  value 
pertaining  to  the  purchase  of  the  Bell  plant. 


REORGANIZED  153 

ment  of  the  excess  of  the  book  value  of  the  plant  over 
its  actual  cost  of  construction;  but  in  view  of  the 
partisan  spirit  in  which  the  unit  costs  were  without 
doubt  —  though  possibly  unconsciously  —  compiled 
and  applied,  it  seems  certain  that  the  effect  of  errors 
operating  to  increase  the  excess  of  book  value  must 
have  been  greater  than  the  effect  of  errors  operating 
to  reduce  this  excess.  The  result,  then,  is  that  the 
figure  of  $1,138,568  in  the  appraisal  report  is  prob- 
ably somewhat  too  large.  Nevertheless,  for  the 
purpose  of  the  revisions  of  the  accounts  of  the  sys- 
tem in  these  pages  the  appraisal  figure  has  been  ac- 
cepted at  its  face  value,  and  in  recasting  the  accounts 
the  amount  of  the  excess  of  book  value  pertaining  to 
the  purchase  of  the  Bell  plant, —  an  amount  which 
represents  the  price  paid  for  the  intangible  items  in- 
volved in  the  purchase,73  —  has  been  excluded  in  toto 
from  the  cost  of  the  plant  as  shown  by  the  annual 
accounts;  and  the  total  amounts  ($336,232)  repre- 
senting the  maintenance  expenses  improperly  charged 
to  construction  (or  capital)  during  the  first  three 
years  of  Government  operation  has  also  been  ex- 
cluded from  the  cost  of  the  plant  as  shown  by  the 
annual  accounts,  the  amount  so  charged  to  capital  in 
each  of  the  years  having  been  carefully  estimated.74 
The  result  is  that  the  moderation  and  the  conserva- 
tism of  the  results  of  the  recast  accounts  have  been 
enhanced:  the  plant  cost  (after  the  deduction  of  the 

73  Cf.  pp.  29-31,  supra.  74Cf.  pp.  54-55,  supra. 


154      GOVERNMENT  TELEPHONES 

excess  of  the  book  value  over  the  cost  of  construc- 
tion) being  too  small,  consequently  the  annual  de- 
preciation charges  based  upon  the  plant  cost  are  too 
small,  the  total  current  expenses  are  too  small,  and 
the  annual  deficits  are  too  small. 

Now,  in  recasting  the  accounts,  the  maintenance 
expenses  improperly  charged  to  capital  in  the  first 
three  years,  after  being  deducted  from  the  book 
cost  of  the  plant,  have  been  properly  added  to  the 
current  expenses  for  "  Maintenance  "  in  those  years ; 
but  no  charge  has  been  included  in  the  current  ex- 
penses of  any  year  to  provide  for  the  gradual  ex- 
tinction of  the  amount  of  $802,336  paid  for  intangi- 
ble assets.  There  can  be  no  question,  however,  that 
this  intangible  capital  should  eventually  be  written 
off  and  that,  for  this  purpose,  a  charge  should  prop- 
erly have  been  included  each  year  in  current  expenses ; 
indeed,  the  necessity  for  making  such  annual  pro- 
visions for  extinguishing  intangible  capital  is  recog- 
nized in  the  appraisal  report,  which  states:  :t  I 
would  recommend  that  the  excess  in  plant  values  be 
carried  as  intangible  capital,  and  charged  off  in  an- 
nual installments."  75  If,  upon  the  acquisition  of  the 
Bell  Company's  plant,  the  Government  had  decided 
to  write  off  this  intangible  capital  in  equal  annual  in- 
stallments during  a  period  of  as  long  as  fifteen  years, 
the  amount  properly  chargeable  to  each  year  would 

75  Eighth   Annual   Report   of   the   Manitoba    Government    Tele- 
phones for  the  fiscal  year  ended  November  joth,  IQI$,  p.  5. 


REORGANIZED  155 

have  been  about  $50,000,  or  an  aggregate  sum  of 
$350,000  for  the  seven  years  of  Government  opera- 
tion ending  November  30,  1914.  Since  the  ag- 
gregate losses  of  the  system  during  the  seven  years, 
exclusive  of  these  charges  for  amortization  of  in- 
tangible capital,  reached  the  sum  of  $650,000,  the 
total  losses  from  Government  operation  up  to  the 
end  of  1914  aggregated  at  least  a  million  dollars! 

INCREASING  DEFICITS  DESPITE  REPORTS  OF  PROFITS; 

NO   PROSPECT  OF  RELIEF  FROM 

POLITICAL  ABUSES 

The  telephone  accounts  for  the  fiscal  year  ended 
November  30,  I9I5,76  published  in  June,  1916, 
show  a  "surplus"  of  $22,541,  of  which  $19,646 
was  set  aside  as  an  additional  reserve  against  de- 
preciation, leaving  a  credit  "  balance  "  for  the  year 
of  only  $2,895.  Although  the  balance  sheet  shows 
that  the  Plant  Account  had  been  reduced  during  the 
year  so  as  to  represent  the  actual  cost  of  construction 
of  the  plant  as  determined  by  the  appraisal  —  the 
excess  of  the  former  book  value  of  the  plant  over  its 
cost  of  construction  ($1,138,568)  being  carried  as 
intangible  capital,  as  recommended  by  the  appraisal 
report  —  yet  in  determining  the  amount  of  the  de- 
preciation charge  included  in  the  current  expenses  of 
the  year  no  change  was  made  in  the  calculation  of  the 

T6  Eighth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ended  November  3oth,  1915,  pp.  3-4,  iz-i8. 


156      GOVERNMENT  TELEPHONES 

average  Life  of  the  plant.  Therefore,  since  the  same 
rates  of  depreciation  were  applied  to  reduced  plant 
values,  the  result  was  that  through  a  mere  change  in 
the  form  of  the  accounts,  the  depreciation  charge 
became  smaller  instead  of  greater  as  it  should  have 
been.  When  an  adequate  depreciation  charge  is  in- 
cluded in  the  current  expenses,  the  result  is  as  fol- 
lows : 

Gross  Revenue . ...  $1,769,589 

Expenses : 

Operation    $602,366 

Maintenance 320,839 

Depreciation    525,510* 

Total  Expenses 1,448,715 

Net  Earnings 320,874 

Interest    418,503 

Deficit $97,629 

*  Equivalent  to  6%  of  plant  cost  at  the  end  of  the  preceding  year. 

Therefore,  the  real  result  of  the  year's  operations 
was  a  loss  of  about  $100,000,  exclusive  of  any  charge 
for  writing  off  intangible  capital, —  the  largest  an- 
nual loss  since  1912.  Even  allowing  for  the  de- 
crease in  business  during  the  year,  in  view  of  the 
fact  that  the  Telephone  Commissioner  said  that  "  the 
policy  of  economy,  as  adopted  for  the  year,  was 
judiciously  applied  wherever  possible  "  and  spoke 
of  the  year's  results  as  "  gratifying,"  77  the  future  of 

77  Eighth  Annual  Report  of  the  Manitoba  Government  Telephones 
for  the  fiscal  year  ended  November  30th,  1915,  p.  3. 


REORGANIZED  157 

the  telephone  finances  is  indeed  a  matter  of  grave 
concern. 

When  the  system  was  placed  under  the  supervision 
of  the  Public  Utilities  Commissioner  in  19 12,78  the 
Commissioner  decided  that  a  condensed  statement 
of  the  earnings  of  the  system  should  be  issued  each 
month.  This  practice,  which  has  since  been  con- 
tinued, was  beneficial  in  so  far  as  the  Public  Utilities 
Commissioner  could  govern  it;79  but  the  accounts 
relating  to  interest  upon  the  telephone  capital  did  not 
fall  within  the  Commissioner's  jurisdiction.  Con- 
sequently, these  monthly  statements  of  earnings  have 
not  shown,  and  do  not  show,  interest  charges;  they 
show  merely  the  excess  of  revenue  over  operating 
expenses,  exclusive  of  interest  charges  —  in  other 
words,  they  show  net  earnings  and  not  net  profits. 
Now,  these  monthly  statements  have  been  widely 
circulated  by  the  press;  but  in  the  press  reports  the 
net  earnings  in  the  statements  have  frequently  been 
mistaken  for  net  profits.  For  example,  the  report 
of  the  statement  for  September  1915  in  The  Tribune 
of  Winnipeg  is  headed  "  Month's  Telephone  Profits 
$42,441.23  "  and  begins:  u  Manitoba  government 
telephones  brought  in  a  net  profit  of  $42,411.23  in 

78  Cf.  p.  1 1 8,  supra. 

79  Subsequent  to  the  change  of  Government  in  1915,  the  Public 
Utilities  Commissioner,  whose  influence  upon  the  system  was  salutary 
in  so  far  as  he  had  authority,  resigned.     In  any  consideration  of  the 
probable   future   relations   of  the   Government  with  the   telephone 
system,  the  apparent  significance  of  his  resignation  should  not  be 
overlooked. 


158       GOVERNMENT  TELEPHONES 

the  month  of  September,  according  to  a  return  issued 
to-day.  The  net  profit  for  that  month  and  the  pre- 
ceding nine  months  was  $330,330.46."  80  Such  re- 
ports naturally  induce  utterly  false  conclusions. 

In  the  campaign  preceding  the  bye-elections 
held  in  mid-summer,  19 15,81  the  Government  were 
naturally  able  to  make  effective  use  of  their  prede- 
cessors' record  of  continuous  mismanagement.  The 
appraisal  report  had  also  been  completed  in  time  to 
make  an  excellent  basis  for  campaign  arguments. 
But  the  Government  and  their  political  partisans 
went  even  further  in  their  efforts  to  secure  campaign 
material :  the  Government  press  called  the  appraisal 
"  a  preliminary  investigation  "  and  promised  a  "  far 
more  searching  inquiry  into  the  telephone  enter- 
prise "  if  the  Government  were  continued  in  office.82 
In  other  words,  promises  in  regard  to  the  telephone 
system  were  once  again  used  to  attract  votes ;  and  the 
Government  made  no  effort  to  conceal  the  fact  that 
they  were  ready  to  use  the  system  for  political  ad- 
vantage by  instituting  an  expensive  "  searching  in- 
quiry "  which  could  serve  no  useful  purpose.  This 
attitude  on  the  part  of  the  present  Government 
clearly  indicates  that  a  change  of  political  masters 
has  not  meant  a  change  of  political  methods. 

The  utter  futility  of  the  Manitoba  Government's 
invasion  of  the  domain  of  commercial  business  is 

*°The  Tribune,  Winnipeg,  October  30,  1915. 

81  Cf.  p.  149,  note  65,  supra. 

82  The  Manitoba  Free  Press,  Winnipeg,  July  26,  1915. 


REORGANIZED  159 

shown  by  the  unconcealed  dissatisfaction  which  is 
rife  at  the  present  moment  —  dissatisfaction  which, 
in  spite  of  publicity  work  on  the  part  of  the  Govern- 
ment, shows  no  evidence  of  subsiding.  For  exam- 
ple, the  Manitoba  Government  Telephones  is  now 
denounced  as  "  one  of  the  most  iron-clad  monopolies 
imposed  on  any  people  "; 83  and  complaint  is  made 
that  the  rates  should  be  "  cut  in  two  "  84 —  the  iden- 
tical language  employed  eight  and  nine  years  ago  dur- 
ing the  political  agitation  against  the  Bell  rates ! 

The  people  of  the  Province  still  have  no  prospect 
of  ultimate  relief  from  the  abuses  accompanying 
political  control. 

83  The  Winnipeg  Telegram,  December  6,  1915. 


IV 
CONCLUSIONS 

The  net  results  of  the  foregoing  narrative  of  the 
course  of  events  and  the  critical  examination  of  the 
accounts  may  be  summarized  as  follows: 

i°  The  telephone  system  was  taken  over  by  the 
Government  not  in  obedience  to  widespread  public 
demand,  nor  on  any  administrative  ground  properly 
so  called,  nor  because  the  existing  service  was  in- 
adequate in  scope  or  exorbitant  in  price,  nor  because 
sufficient  capital  was  not  forthcoming  for  extensions; 
but  solely  because  the  Provincial  Government  thought 
they  saw  in  its  acquisition  a  party  political  advantage. 
In  other  words,  the  Government  acquired  the  system 
not  to  promote  the  public  interest  in  any  real  sense, 
but  to  promote  the  political  interest  of  the  Govern- 
ment party  in  such  a  way  as  to  contribute  to  keep  the 
Government  in  power. 

2°  The  promises  made  by  the  Government  in 
order  to  stimulate  a  public  interest  which  did  not 
previously  exist  were  made  in  some  cases  certainly 
without  knowledge  of  the  subject,  in  other  cases 
probably  without  intention  of  fulfilment,  in  all  cases 
without  justification. 

160 


CONCLUSIONS  161 

3°  From  the  beginning  of  public  ownership,  the 
telephone  system  was  used  for  political  purposes, 
sometimes  overtly,  at  other  times  furtively,  but  al- 
ways with  a  cynical  disregard  for  the  interests  of  the 
public. 

4°  The  technical  management  of  the  system  was 
always  subordinated  to  the  political  management. 
Even  rates  were  determined  not  by  the  Commission 
appointed  by  the  Government,  but  by  the  Govern- 
ment itself;  and  in  fixing  these  rates  the  Government 
discriminated  sharply  against  the  urban  areas.  This 
discriminatory  policy  was  not  unskilfully  conceived. 
It  was  a  policy  of  dividing  to  conquer;  for  by  setting 
the  interests  of  the  classes  who  are  in  the  majority 
against  the  interests  of  the  citizens  who  are  in  the 
minority,  the  Government  secured  a  political  advan- 
tage. 

5°  From  the  beginning  the  Government  employed 
the  balances  of  money  in  the  hands  of  the  Telephone 
Commission  for  its  own  general  purposes.  It  also 
absorbed  the  funds  which  should  have  been  held  in 
trust  for  the  replacement  of  worn-out  plant.  It  neg- 
lected to  provide  an  independent  continuous  audit 
and  when,  forced  by  local  public  opinion,  it  did  call 
for  an  audit,  it  failed  to  adopt  the  important  sugges- 
tions of  its  own  auditor. 

6°  The  unsound  financial  policy  and  the  misman- 
agement of  the  Government  brought  the  telephone 
system  to  the  pass  that  either  the  revenue  had  to  be 


1 62       GOVERNMENT  TELEPHONES 

increased  or  the  system  had  to  be  permitted  to  grav- 
itate rapidly  into  hopeless  insolvency.  In  either 
case  the  disclosure  had  to  be  made  that  the  acquisi- 
tion of  the  telephone  system  had  not  really  been  at- 
tended by  the  success  that  the  Government  had  been 
constantly  announcing.  The  straightforward  thing 
for  the  Government  to  have  done  would  have  been 
to  admit  the  faults  of  their  administration,  to  vindi- 
cate the  Commission,  to  provide  out  of  the  general 
revenues  of  the  Province  the  whole  amount  of  the 
estimated  loss  at  that  period,  and  at  the  same  time  to 
ask  the  Commissioners  at  what  rates  they  were  pre- 
pared to  conduct  the  business.  None  of  these  things 
was  done;  instead,  the  Government  proceeded  to 
make  the  Commission  a  scape-goat,  appointed  a 
Royal  Commission  to  inquire  into  the  conduct  of  the 
Commissioners  —  that  not  being  at  all  in  question  — 
and  avoided  scrupulously  all  reference  to  the  Gov- 
ernmental blunders  and  misdeeds  that  had  brought 
the  telephone  system  into  discredit. 

7°  The  Government  secured  the  resignations  of 
the  Commissioners  and  proceeded  to  make  hurried 
"  reforms."  These  reforms  were  expensive;  but  as 
they  were  all  made  in  a  month  it  may  be  inferred  that 
they  were  not  very  thorough.  The  new  era  of  the 
telephone  system  was,  however,  ushered  in  by  the 
appointment  of  an  overseer  in  the  person  of  the  Com- 
missioner of  Public  Utilities.  But  even  with  these 
changes,  there  is  no  evidence  of  any  change  of  prac- 


CONCLUSIONS  163 

tice  on  the  part  of  the  Government.  The  fact  is  that 
the  Government  was  not  inclined  to  abandon  the  po- 
litical leverage  given  it  by  an  industrial  enterprise 
whose  operations  were  so  widely  extended  through- 
out the  Province. 

8°  Then  came  the  evacuation  by  the  Government 
of  a  position  which  had  been  rapidly  becoming  inse- 
cure. The  members  of  the  Government  resigned 
and  their  places  were  taken  (without  an  immediate 
election)  by  their  opponents. 

9°  A  spectacular  incident  in  Provincial  politics 
occurred  when  the  members  of  the  Government 
which  had  just  resigned,  were  prosecuted  for  con- 
spiracy, fraud,  etc. 

10°  Then  came  the  resignation  of  the  Public  Util- 
ities Commissioner;  and  owing  partly  to  the  condi- 
tions induced  by  the  war,  but  more  largely  to  condi- 
tions in  the  previous  history  of  the  telephones, 
development  of  the  system  was  arrested. 

11°  The  entire  history  of  the  Government  tele- 
phone enterprise  in  Manitoba  affords  evidence  of  the 
most  positive  character  against  Government  owner- 
ship. Practically  all  of  the  defects  which  have 
emerged  elsewhere  in  the  management  of  industries 
by  State  officials  have  made  their  appearance  in  the 
case  of  the  Manitoba  Telephones.  The  manage- 
ment has  been  ineconomical,  the  enterprise  has  been 
handicapped  by  political  intrigue,  the  finances  min- 
gled as  they  have  been  with  the  general  finances  of 


1 64      GOVERNMENT  TELEPHONES 

the  Province  have  been  unsoundly  administered  from 
the  beginning,  and  the  obligations  of  the  public  have 
been  enormously  increased  without  adequate  com- 
pensatory advantages. 

It  is  possible  that  only  by  repeated  and  costly 
failures  such  as  the  Manitoba  Government  Tele- 
phones, will  the  public  realize  that  the  proper  func- 
tion of  Government  is  not  the  conduct  of  industries 
but  the  impartial  inspection  of  them  under  intelli- 
gent laws  adapted  to  the  character  and  conditions  of 
the  community  and  the  country. 


THE   END 


INDEX 


Accountancy    practice    of    Gov- 
ernment Telephones  con- 
demned by  Chartered  Ac- 
countants,  108 
unsound   from   beginning,   41, 

53,  58,   68 
See  also  Accounts 
Accounts  of  Government  Tele- 
phones,      as       published, 

(1908)  51;     (1909)     69; 

(1910)  78;     (1911)     82; 

(1912)  124-125;     (1913) 
127;    (1914)    139;    (1915) 
155 

as  recast  according  to  sound 
methods,  (1908)  58; 

(1909)  69;     (1910)     795 

(1911)  83;    (1912)    126; 

(1913)  129;    (1914)    139; 
(1915)    156 

condemned  by  Chartered  Ac- 
countants,   108 
criticized    by    Opposition,    52- 

53,  60 

fail  to  include  interest 
charges,  69,  72,  78,  82, 
125 

fail  to  include  provision 
against  depreciation,  41, 
60,  69,  71-72,  78,  8 1,  82, 
86,  93-94,  107 

fail  to  provide  any  Sinking 
Fund,  71 

improperly  include  Mainte- 
nance expenses  in  capital, 

54,  55,  60,  68,  78,  152 
include    inadequate    deprecia- 
tion charge,  125,  127-128, 
139,  155-156 


165 


Accounts — continued 

include  interest  charges,    127, 

138 
include  unearned  revenue,  53, 

60 
Method    of    recasting,    54-57, 

153-154 

not  properly  audited,  74 
show  Maintenance  expenses  as 

separate  item,  125 
Administration    of    Government 

Telephones,    Organization 

of,  36-38 
Reorganization    of,     67,     116, 

137 

Admissions    by    Government   of 
failure  to  fulfill  promises, 

145 

Advisory  Telephone  Board  ap- 
pointed, 118 

Alberta,    Telephone    system    in, 
viii,  65,  i47n. 

Appraisal   of   Government   tele- 
phone plant  (1915),  151 
basis     for     campaign     argu- 
ments, 158 

Arbitrary  telephone  rates,  121 

Armstrong,  Dr.,  M.  P.  P.,  73 

Attorney-General    of   Manitoba, 
19,  21,  73 

Audit,  Absence  of,  74 

Change  of  system  of,  137,  138 
ineffectual,  161 

Auditor,  Telephone  accounts  not 
audited  by  Provincial,  74 

Australia,  Telephones  in,  91 

Barry,  Mr.  R.  L.,  of  Minneapo- 
lis, appointed  Royal  Com- 


i66 


INDEX 


Barry,  Mr.  R.  L. — continued 

missioner   (1912),  97 
Interrogations  of,  101 
appointed       sole       Telephone 

Commissioner,   115 
assumes  duties,  116 
resigns,  116 

Bell    Telephone    Company,    13, 
14,  15,  16,  18,  19,  21,  22, 
23,  2sn,  26,  27,  28,  29,  35, 
36,  42,  45,  45n,  48,  52,  59, 
59n,   76,   87,   93,   95,    113, 
129,  146,  147 
Birtle,  Manitoba,  23 
Brandon,  Manitoba,  13,   14,  22, 

106,  147 
Bulletin,  The  (Winnipeg),  68n. 

Canada  Year  Book  1914,  136 

Canadian  Finance,  107 

Canadian  Independent  Tele- 
phone Association,  2in. 

Capital  account  of  Government 
Telephones,  inflated  by 
improper  addition  of 
Maintenance  expenses,  55, 
60,  68,  78 

expenditure  of  Bell  Telephone 
Company,  26-27 

Census  of  Canada,  IQII,  13 

Chicago  (111.),  Telephones  in, 
97 

Christie,  Mr.,  Member  of  Com- 
mittee on  Telephones,  In- 
dustrial Bureau  of  Win- 
nipeg, 94 

Citizen,  The  (Ottawa),  i7n. 

Climate.    See  Depreciation 

Coldwell,  Mr.,  Member  of 
Manitoba  Government, 

113 

Commercial  management  of  tele- 
phones promised  by  the 
Government,  33-35 

Commission,  Royal.  See  Royal 
Commission 


Commission,      Telephone,      ap- 
pointed, 36 

Membership  of,  36-37 

Original  functions  of,  36,  37 

lacks  full  power,  37,  38,  41, 
66,  69,  70-71,  72,  78,  104, 
107,  138 

subjected  to  political  pressure, 
38-42,  43,  44,  46,  64,  74, 
84-86,  106,  107 

additional    functions   of,   46 

introduces  functional  organ- 
ization, 67 

forces  Government  to  meet 
deficit  or  increase  rates, 
81-82 

puts  into  effect  reduced  local 
rates  (1909),  62-64 

increases  long  distance  rates, 
88 

proposes  to  increase  local 
rates  (1911),  88-90 

Government  expresses  confi- 
dence in,  96 

investigated  by  Royal  Com- 
mission of  Inquiry,  96- 
in 

made  scapegoat  for  Govern- 
ment, 99 

loyal  to  Government  during 
inquiry  of  Royal  Commis- 
sion, 102 

made  to  appear  responsible 
for  practices  over  which 
it  has  no  control,  103-109 

resigns,  112 

Mr.    R.    L.    Barry    appointed 

sole  Commissioner,  115 
resigns,  116 

Mr.  G.  A.  Watson  appointed 
sole  Commissioner,  117 

placed  under  supervision  of 
Advisory  Telephone 

Board,  118 

given  more  independent  pow- 
er, 118 


INDEX 


167 


increases  rates    (1912),   121 
Committee     on     Private     Bills 
(Manitoba     Legislature), 
16 

Competition  in  telephone  serv- 
ice prevented  by  Mani- 
toba Government,  122- 
123 

Construction  of  telephones,  Con- 
trol over,  by  Government, 
37,  38,  39,  109 
Feverish  energy  in,  43 
ineconomical    and   marked  by 
political    abuses,    38,    43, 
76-78,  8 1,  83-86,  105 
Not  all,  justifiable,  38,  75,  84 
retarded,  118,  143,  163 
to  be  let  on  contract  under  re- 
organized system,  123 
Cost,  Promises  by  the   Govern- 
ment    to     provide     tele- 
phones at,  1 8,  50,  52 
per    unit,    Decrease    of,    un- 
der    reorganized     system 
(1912),  117 

Increase  of,  with  increased 
number   of   telephones   in 
use     denounced     by     the 
Government  as  a  "  falla- 
cious theory/"   19 
proved  to  increase  with  in- 
creased   number    of    tele- 
phones in  use,  145 
Credit  of  Province  damaged  by 
Government       ownership 
of  telephones,  32,  47,  70, 
fH3,   150 

Criticism  of  Government  under- 
takings by  public  not  usu- 
ally instructed  or  ef- 
fective, 4 

Crowe,  Mr.  G.  R.,  Royal  Com- 
missioner (1912),  96 

Debt,  Effects  of  increase  in  pub- 
lic, 6,  ii 


Debt — continued 

of   Manitoba   doubled  by  the 
acquisition    of    Bell    tele- 
phone system,  31 
See  also  Credit 
Defence  by  the  Government  of 

its  telephone  policy,  146 
Deficit  of  Government  Tele- 
phones after  accounts  are 
recast  on  a  sound  basis, 
(1908)  58;  (1909)  69; 
(1910)  79;  (1911)  83; 
(1912)  126;  (1913)  129; 
(1914)  139;  (1915)  156 

as  published    (1911),  82 

concealed  by  unsound  ac- 
counting practice  of  the 
Government,  58  et  passim 

pointed  out  by  Opposition 
press,  52-53 

exceeds  $300,000,  83 

at  least  $650,000,  141 

aggregates  at  least  $1,000,000, 

155 
may  be  expected  to  continue, 

140,  156-157 

Depreciation  not  provided  for, 
54,  71-72,  78,  81,  82,  86, 
93-94,  107 

rapid  on  account  of  climate 
of  Manitoba,  55,  55n,  128, 
140 

charge,  Absence  of,  criticized 
by  the  Industrial  Bureau 
and  the  Board  of  Trade 
of  Winnipeg,  94 

Absence  of,  noticed  by  Op- 
position, 60 

inadequate,     125,     127-128. 
139,  155-156 

included  in  current  expenses 
for  the  first  time,  124 

Method    of    calculation    of, 
unscientific,  128 

ought  in  the  case  of  Mani- 
toba to  be  at  least  6  per 


i68 


INDEX 


Depreciation — continued 

cent,  annually,  55,  141 
placed  under  supervision  of 
Public    Utilities    Commis- 
sion, nS 

recommended  by  Telephone 
Commission  and  refused 
by  Government,  41,  56, 
86 

reserve    improperly    applied, 
143 

Depression  of  trade  in  Mani- 
toba (1914),  136 

Deterioration  of  service,  Al- 
leged, 93,  106,  131 

Detroit  News  Tribune,  48n. 

Development  of  telephone  sys- 
tem retarded  from  vari- 
ous causes,  118,  143,  163 

Disadvantages  of  public  owner- 
ship. See  Public  owner- 
ship 

Discrimination    in    service,    39, 
^  43-44,  84 

Dominion  Government  refuses 
to  amend  charter  of  Bell 
Telephone  Company,  16- 

17 

Parliament  and  the  telephone 
question,  65 

Eastern  Canada,  i5n. 

Election,    General     (1907),    25; 

(1914)  143,     148,     149; 

(1915)  i49n,  158 
Employees     appointed    for    po- 
litical reasons,  40,  44,  66- 
67,  104 

incompetent,  104-105 

used    for    political    purposes, 

144 
See  also  Labor,  Patronage, 

Wages 

Europe,  Telephones  in,  15 
Evening  Telegram,  The   (Win- 
nipeg), i45n. 


Farmers'  telephones.  See  Ru- 
ral telephones 

Finance.  See  Accounts,  Deficit, 
Depreciation,  Overdrafts, 
Profits 

Finances  of  Manitoba,  25,  47, 
136,  143,  150 

Financial  methods  of  the  Gov- 
ernment in  relation  to  the 
telephone  system,  41,  70- 
72,  80,  86,  104,  142 
results  of  Government  opera- 
tion of  telephones.  See 
Accounts 

Free  Press  News  Bulletin 
(Winnipeg),  i45n. 

Friction  between  Telephone 
Commission  and  employ- 
ees, 67,  117.  See  also 
Employees,  Labor 

Gazette,  The   (Montreal),  36 

Germany,  Telephones  in,  91 

Government  ownership.  See 
Public  ownership 

Government   of   Manitoba   con- 
fesses   ignorance    of    the 
telephone  business,  96 
Increase  of  control  by,  in  1914, 

138 

Relations    of,    to    Telephone 
Commission,    39,    97,    99, 
1x8 
See   also   Political   pressure 

Governmental  management  of 
industrial  enterprises  in- 
economical,  6-7 

Grain  elevators,  Public,  ii9n. 

Great  Britain,  Telephones  in, 
91,  131-132 

Hayes,  Mr.  W.  H.,  Commis- 
sioner Engineer  (First 
Telephone  Commission), 

,37'  6.8 
Resignation  of,  113 


INDEX 


169 


Head    office    expenses    proposed 
to  be  saved  under  Gov- 
ernmental      management 
of  telephones,  33 
functions,  109 

neglected       by       Manitoba 
Government,  38 

Herald,  The   (Montreal),  170. 

Horan,  Mr.  H.  J.,  Commissioner 
Auditor  (First  Telephone 
Commission ) ,  appointed, 

37 

Memorandum  by,  44,  85,  86 
Resignation  of,  112 

House  of  Commons  (Canadian), 
Misleading  statements  as 
to  the  financial  results  of 
the  Manitoba  Govern- 
ment Telephones  made  in 
(1909),  65 

Hydro-electric  system  for  Mani- 
toba proposed  and  re- 
jected, 32 

Illinois,  Telephones  in,  148 

Independent  Telephone  Com- 
pany of  Canada,  i6n. 

Inspection  rather  than  operation 
the  proper  function  of 
Government,  164 

Intangible  capital,  29-31,  59,  95, 

153,  154 

ought  to  be  written  off  by  an- 
nual  instalments,   59,   154 
Interest.    See  Accounts 
Iowa,  Telephones  in,  148 

Journals  of  the  Legislative  As- 
sembly of  Manitoba,  i6n, 
lyn,  I9n,  5on,  6on,  74n, 
75n,  xoin,  n8n. 

Kansas,  Telephones  in,  148 

Labor  difficulties  in  Manitoba 
Government  telephone 


system,  66-67,  83-84,  104, 
130 
Scarcity  of,  44,  77,  104 

La  Crosse  (Wis.),  Telephones 
in,  97 

Legislation  permitting  munici- 
pal ownership  and  opera- 
tion of  local  telephone  ex- 
changes (1899),  15 

Legislature  of  Manitoba,  16,  19, 

27,  29,  34 

Liberal  Handbook  (1914),  144 

Locke,  Mr.  Justice,  Royal  Com- 
missioner (1912),  96 

Long  Distance  service,  18,  20, 
25,  43,  87 

Loss  in  operation  of  Manitoba 
Government  Telephones, 
See  Deficit 

Maintenance    expenses    improp- 
erly   charged    to    capital, 
54,    55,    60,    68,    78,    152 
shown    as    a    separate    item, 
125 

Manitoba  Free  Press  (Winni- 
peg), i6n,  i8n,  2on,  2in, 
23n,  24n,  25n,  26n,  27n, 
3in,  32n,  33n,  34n,  43n, 
45n,  46n,  47n,  48n,  49n, 
5on,  52n,  53,  53n,  6on, 
67n,  76,  77n,  85n,  88,  88n, 
97n,  105,  io6n, 
ii2n,  n6n,  i22n, 
I42n,  I44n,  I45n,  I48n, 
1580. 

Manitoba  Government  and  Pub- 
lic Ownership  of  Tele- 
phones, The,  23 

Measured    service    rates    intro- 
duced (1909),  63 
proposed  to  be  made  compul- 
sory for  business  lines  in 
Winnipeg,   90 
plan  dropped,  100 

Milwaukee  Sentinel,  The,  1410. 


170 


INDEX 


Milwaukee    (Wis.),  Telephones 
in,  141 

Minister    of   Public   Works,    16, 

17,  50,  55n,  61 

Telephones  and  Telegraphs, 
32,  37,  45-46,  n8.  See 
also  Telephones  and  Tel- 
egraphs, Department  of 
Railways 

Minneapolis  Journal,  48n. 

Minneapolis       (Minn.),      Tele- 
phones in,  97 

Minnesota,  Telephones  in,  148 

Morning  Post,    The    (London), 
i32n. 

Municipal  Act  (Manitoba),  15 
agitation    for    public    owner- 
ship    of     telephones     in 
Manitoba,  15 
exchanges,  Isolation  of,  16 
ownership    of    telephones    in 
Manitoba,  15,  19,  24,  25, 


Neepawa,  Manitoba,  15,  21 

New  York  Tribune,  48n. 

Ninga,  Manitoba,  Dismissal  of 
telephone  agent  at,  on  po- 
litical grounds,  6yn. 

North  West  Telephone  Com- 
pany, 1 6 


Official  Report  of  the  Debates  of 
the  House  of  Commons 
(Canada),  6sn,  66n. 
Opposition  party  in  Manitoba 
Legislature,  20,  29,  50,  60, 
101,  143,  144,  149 

attacks    the   terms    of    tele- 
phone purchase,  29,  31 

criticizes  telephone  accounts, 
60,  74 

criticizes    telephone    admin- 
istration, 144 


Opposition  party — continued 
moves    for     Committee    on 

telephone  system,  101 
press    and    Government    tele- 
phones, 26,  31,  43,  47,  50, 
52,  53,  92,  144 
criticizes       telephone       ac- 
counts, 52-53 
criticizes   increase   of   rates, 

92 
Orders-in-Council     (Manitoba), 

37,  4i,  46,  96 

Ottawa  Free  Press,  The,  i7n. 
Overdrafts  from  Bank  by  Tele- 
phone Commission,  60,  86, 
142 

Paris,  Telephones  in,  15 

Paterson,  Mr.  F.  C.,  first  Chair- 
man of  Telephone  Com- 
mission, 36,  55n,  70,  72, 
85,  91,  107,  no,  113 

Patronage  in  telephone  admin- 
istration, Political,  44,  46, 
84-85,  104 

Piper,  Mr.,  member  of  Com- 
mittee of  Industrial  Bu- 
reau of  Winnipeg,  94 

Poles  for  telephones,  Excessive 
numbers  of,  purchased  by 
the  Government,  39-40, 
103 

Political  origin  of  agitation  for 
Government  ownership 
of  telephones,  16,  18,  22, 
25,  34,  35,  1 60 

pressure     exercised     on     tele- 
phone   management,     38- 
42,  43,  44,  46,  50,  64,  66, 
67,  74,  76,  84-86,  103,  106, 
107,  1 1 8,  138,  144 
Apparent  decline  of,  149 
Apparent    revival    of,    un- 
der     new      Government, 
152,  158 
promised  to  be  avoided,  34 


INDEX 


171 


Political  origin — continued 

upon    Telephone     Commis- 
sion other  than   Govern- 
mental, 85 
situation  in  Manitoba  in  1906, 

20 
Portage    la    Prairie,    Manitoba, 

13,  i4»  147 

Postmaster  General  of  United 
States  on  cost  of  rural 
mail  delivery,  i2sn. 

Private  enterprise  and  the  tele- 
phone,   Manitoba,    13-29, 
122-123 
United  States,  148 

Profits,  Fictitious,  10,  41,  48,  49, 
51,  61,  65,  69,  70,  78,  80, 
125,  127,  139 
under     new      Government, 

155,  157-158 

promised  under  Government 
ownership,  19-20,  32-33, 

35 

See  also  Deficit 

Promises.    See  Commercial 

management,  Profits, 

Rates 

Public  Accounts  of  Manitoba, 
2$n,  50,  69n. 

Committee  (Manitoba  Leg- 
islature), 60,  64,  70,  72n, 
73n,  74,  86n. 

Exploitation  of  the  Govern- 
ment telephone  system  by 
the,  45 

interests  wholly  overlooked  in 
Government     administra- 
tion of  telephones,  161 
ownership,   Future  of,   as   af- 
fected by  the  war,  n 

not  suitable  or  necessary 
for  telephone  business,  2- 
4 

Origin  of,  in  Manitoba, 
summarized,  34-35 

Pecuniary  disadvantages  of, 
5-6 


Public  Accounts — continued 

Results  of,  in  foreign  coun- 
tries, 1-9 
Social  disadvantages  of,  2- 

.  A'  8~9 
Utilities       Commission,       118, 

124,  I28n,  130,  157,  i57n. 

approves       rate       increase 
(1912),  121 

Beneficial  influence  of,  119, 

127 

Purchase  of  the  Bell  telephone 
system  by  the  Govern- 
ment, 26,  28,  29,  95,  151, 

154 

price  of  Bell  telephone  sys- 
tem, 28 

criticized  by  Opposition  and 
defended  by  Government, 
29-31,  94-95 
not  unreasonable,  31 

of  telephone  supplies  con- 
trolled by  the  Govern- 
ment, 37,  40 

Rates  promised   to  be  "cut  in 

two,"  19,  21,  22,  35 
reduced  considerably,  17,  19, 

23,  32 
reduced  to   "cost,"    18,   20, 

50,  52 
Retention    of   Bell    Telephone 

Company's,  47 
Sectional  increase  of    (1908), 

42,  47 

Reduction  of,  by  Government 

for      political      purposes 

(1909),  62-64,  73 

Unjustifiability  of,  66,  81,  86 

Increase  of  long  distance,  88 

Proposed  increase  of    (1911), 

88-90 

technically  justifiable,  91 
Violent  opposition  to,  92-93 
abandoned  (1912),  100 
Reports    upon,    by    Winnipeg 


172 


INDEX 


Rates  promised— continued 

Board  of  Trade  and  In- 
dustrial  Bureau,   93-94 
placed    under    supervision    of 
Public    Utilities    Commis- 
sion, 118 
General    increase    of    (1912), 

121,  144,  145,  150 
increases  revenue  by  $200,- 

ooo  per  year,  129 
produces    insufficient    reve- 
nue, 140 
complained    of    by    public, 

159 

of  Bell  Telephone  System  in 
the  United  States,  129 

Private  company  offers  to  re- 
duce, 122 

General   schedules  of,   62-63, 

89,  121 

Rebates  demanded  on  the 
ground  of  announcement 
of  fictitious  profits,  50 
Reconstruction  costs  improperly 
charged  against  current 
revenue,  56,  104 

properly  charged  against  De- 
preciation Reserve,  125 

Telephone  Commissioner  an- 
ticipates great  increase 
of,  140 

Reorganization  of  Government 
Telephones,  (1909)  67; 
(1912)  116 

Plan  for  (1915),  137 
Report  by  independent  account- 
ants      on       Government 
bookkeeping  system,   108 

of  American  Telephone  and 
Telegraph  Company 

(1913),  i29n. 

of  Citizens'  Committee  of  In- 
quiry as  to  Local  Tele- 
phone Rates  (Winnipeg 
Industrial  Bureau),  94 

of      Manitoba      Government 


Report — continued 

Telephones,    53,    550,    68, 
75n,     ySn, 
u6n,    H7n, 
,    i28n, 

I42n,    i46n,    ism, 
I52n,  i54n,  i55n,  is6n. 

of  Public  Utilities  Commis- 
sioner of  Manitoba,  i2in, 
I3on,  i3sn,  137,  i38n. 

of  Royal  Commission  of  In- 
quiry into  Telephone 
Commission  (1912),  97, 
100,  112 

of  Telephone  Committee 
(Winnipeg  Board  of 
Trade),  94 

Resignation  of  Manitoba  Gov- 
ernment (1915),  149 

of  Public  Utilities  Commis- 
sioner (Mr.  Robson), 
I57n. 

of     Telephone      Commission, 

112 

Resolutions  and  Memorials  of 
the  Legislative  Assembly 
of  Manitoba  respecting 
Public  Telephones  (1906), 
2on. 

Roblin,   Sir  Rodmond    (Premier 
of  Manitoba),  16,  17,  21, 
27,  290,  33i  96n. 
Resignation  of,  149 
Robson,  Mr.  H.  A.,  K.  C.  (Pub- 
lic Utilities  Comissioner), 
"8,  157 
Beneficial    influence    of,    119, 

127 

Resignation  of,  1570. 
Rome,  Telephones  in,  15 
Royal    Commission    of    Inquiry 
into     Telephone     Affairs 
appointed,  96 
Scope  of  inquiry  of,  99 
Stenographic  report  of,  39, 
97 


INDEX 


Royal  Commission — continued 
Public  indifference  to,  98 
Interim  report  of,  100 
Evidence  before,  101 
Influence     of     Government 

upon,  101,  102 
makes  no  reference  to  De- 
preciation     Reserve      or 
Sinking  Fund,  107 
Final  report  of,  97-98 
Unsatisfactory  character  of 

final  report  of,  m 
attempts    to    vindicate    the 
Government    at    the    ex- 
pense   of    the    Telephone 
Commission,  in 
to  investigate  charges  against 
the     Manitoba     Govern- 
ment (1915),  149 
Rural  municipalities,   15 

rates,  Reduction  of,  by  Gov- 
ernment for  political  pur- 
poses, 62-64,  73 
Proposed         increase         of 

(1911),  88-90 
Increase  of  (1912),  121 
telephones,    Cost    of    installa- 
tion of,  85 
Extension  of,  38,  43,  81,  84, 

106,  147 

promised  on  behalf  of  the 
Government  at  $i  per 
month,  23 

Salaries.    See  Wages 

Saskatchewan,  Telephones  in, 
viii,  65,  i47n. 

Schedule  of  rates,  (1909)  62- 
63;  (1911)  89;  (1912) 
121 

Service,  Quality  of,  Alleged  de- 
terioration of,  93,  106, 

131 

under  Bell  Telephone  Com- 
pany, 1 8 

under    Government   admin- 


Service — continued 

istration,   47-48,    93,    106, 

131,  133-135,  i44 

Sessional  Papers  of  Manitoba 
Legislature,  25n,  29n,  37n, 
fin,  s6n,  64n,  68n,  69n, 
72n,  73n,  75n,  79n,  83n, 
86n,  97n,  icon,  xosn, 
u6n,  i26n,  i42n. 

Sinking  Fund,  No  provision  for, 
71,  107 

Sise,  Mr.  C.  F.  (President  of 
the  Bell  Telephone  Com- 
pany of  Canada),  invited 
to  discuss  terms  of  pur- 
chase, 28 

State   action,   Habit  of  leaning 

upon,  98 

collectivism,     Oscillations     in 
attitude     of     public     to- 
wards, 2 
usually  adverse  to  technical 

progress,  2 
monopoly,  Effects  of,  2 

Statutes  of  Manitoba,  i5n,  2on, 
24n,  25n,  n8n. 

St.  Paul  (Minn),  Telephones  in, 

97 
Strike  threatened  by  Winnipeg 

telephone  employees,  67 
Subscribers,     Number     of.    See 

Telephones,  Number  of 
Surplus.    See  Profits 

Taxation,     Government     Tele- 
phones   free    from,    59n, 
142 
involves       reduced       yield 

from,  142 
of  Bell   Telephone  Company, 

59"- 

Telephone        Commission.    See 

Commission,  Telephone 
Commissioners.    See  Commis- 
sion, Telephone 

Telephones      and      Telegraphs, 


INDEX 


Telephones — continued 

Department  of  Railways, 
29,  30,  32,  36,  45-46 
See  also  Minister  of  Tele- 
phones and  Telegraphs 

Number  of,  13,  14,  27,  28,  75, 
141,  146 

Growth  in,  not  due  to  Gov- 
ernment control,  76,  146- 
148 

Telephone  system  in  Manitoba, 
Beginning  of  (1880),  13 

Purchase  of,  by  Bell  Tele- 
phone Company  of  Can- 
ada (1881),  13 

Extension  of    (1882-84),  *3 

Economic  depression  causes 
slow  development  of 
(1888-1905),  14 

Character  of  immigration  re- 
tards development  of,  14 

Rapid  expansion  of  (1900- 
1908),  15 

Inquiry  by  Government  into, 
16 

Application  of  Manitoba  to 
Dominion  Government  to 
amend  charter  of  Bell 
Company  rejected,  16-17 

Project  of  joint  Governmental 
and     Municipal     owner- 
$ship,  17 

Policy  of  Government  regard- 
ing, 1 8,  20 

Committee  of  Legislature  on 
(1906),  19 

Alleged    exorbitant   rates    of, 

19 

Rates  to  be  "cut  in  two"  by 
Government,  19,  21,  22 

Construction  of  competitive 
Government  system  in 
Winnipeg  (1907),  23 

Municipalities  reject  Govern- 
ment policy  in  respect  to, 
24 


Telephone  system — continued 

Purchase  by  the  Government 
of  the  Bell,  26 

Position  at  the  time  of  pur- 
chase of  the,  27 

Terms  of  purchase  of,  29-31 

Promises  of  Government  re- 
garding,^, 33,  35 

First  Commission  appointed 
to  manage,  36 

Commission  for  management 
lacks  full  power,  37 

Political  pressure  upon,  38  et 
seq. 

Abolition  of  technical  staff  in 
Telephone  Department, 
46  m 

Opposition   criticism   of,    47 

Alleged  surplus  from,  48 

Political  importance  of,  49 

Accounts  of   (1908),  51 

Real  deficit  in,  53 

Current  expenses  of,  improp- 
erly charged  to  capital,  54 

Necessity  of  recasting  ac- 
counts of,  54 

Absence  of  Depreciation  Re- 
serve in,  55 

Deficit   (1908),  58 

Opposition  criticism  of  ac- 
counts of,  60 

Reduction  of  rates  in,  62 

Unremunerative  farmers'  rate 
in,  64 

Influence  of  misstatement  of 
financial  results  in,  65 

Labor  difficulties  of,  66 

Reorganization  of,  67 

Deficit  in  (1909),  69 

Public  Accounts  Committee, 
criticism  of,  70 

Political  abuses  in,  76 

Deficit  in   (1910),  79 

Crisis  of   (1911),  81 

Disappearance  of  fictitious 
"  surpluses,"  and  admis- 


INDEX 


175 


Telephone  system — continued 

sion  of  heavy  loss  upon, 
81 

Deficit  in  (1911),  83 

Specific  causes  of  financial 
failure  of  the,  83  et  seg. 

Political  influence  in,  85 

Long  distance  rates  increased 
in,  88 

New  local  rate  schedule  pro- 
posed for,  89,  90 

Measured  service  proposed 
for,  90,  91 

Hostility  to  rates  proposed  for, 
92 

Royal  Commission  of  Inquiry 
upon,  96 

Public  indifference  towards 
Commission  upon,  99 

Employees  of,  incompetent 
and  appointed  for  polit- 
ical purposes,  104,  105 

Alleged  deterioration  of  serv- 
ice in,  106 

Resignation  of  Commission 
for  management  of,  112 

Appointment  of  sole  Commis- 
sioner for,  115 

Resignation  of  Commissioner 
for,  n  6 

Appointment  of  new  Commis- 
sioner for,  117 

Public  Utilities  Commissioner 
to  supervise,  n8 

Rates  increased  in,  121 

Deficit  in   (1912),  126 

Deficit  in   (1913),  129 

Unsatisfactory  service,  131  et 
seq. 

Auditor's  certificate  absent 
from  accounts  of  (1914), 
138 

Deficit  in  (1914),  139 

Anticipated  increase  of  re- 
construction charges  in, 
140 


Telephone  system — continued 
Misuse  of  trust  funds  of,  142 
Credit  of  Province  damaged 

by,  143 

Influence  of  change  of  Gov- 
ernment upon  (1915),  149 
Appraisal  of  plant  of,  151 
Political    influence    still    exer- 
cised upon,  152 
Aggregate  loss  upon,  155 
Deficit  in   (1915),  156 
Misleading  statement  of  finan- 
cial results  of,  157 
Conclusions  regarding,  160  et 

seq. 

Telephony,  49n. 
Toronto,     Ontario,    Telephones 

in,  141 

Toronto  World,  The,  1410. 
Trades    and    Labor    Council   of 

Winnipeg,    67 
Treasurer  of  Manitoba,  51 
Tribune,  The  (Winnipeg),  49n, 

96n,    I5in,    I57n,    i58n. 
Trust  funds  improperly  applied, 
142 

United  States,  Telephones  in,  19, 
91,   129,   147,   148 

Valuation    of    Bell    system    in 
Manitoba  by  Government 
engineer,  29,  30 
Government     plant      (1915), 

151 

basis    for    campaign    argu- 
ments, 158 

Vienna,  Telephones  in,  15 

Wages,  Decrease  of,  117,  130 
Increase  of,  130 
Dissatisfaction    of    employees 
with,  131 


i76 


INDEX 


War,  Advantage  of  private 
ownership  of  telephones 
as  preparation  for,  3-4 

Watson,  Mr.  G.  A.,  Commis- 
sioner of  Telephones,  117 

Webb,  Read,  Hegan,  Callaghan 
and  Company,  Chartered 
Accountants,  Report  of, 
108 

Winnipeg,  13,  14,  22,  25,  26,  42, 

89,  90,  91,  92,  93.  97,  98, 
100,  in,  121,  131,  146 


Winnipeg  —  continued 

Board  of  Trade  of,  Report  on 

rates,  93,  94,  122 
Industrial  Bureau  of,  Report 

on  rates,  93,  94,  122 
Winnipeg  Telegram,  The,  isn, 
I4n,    isn,    i6n,   2in,   27n, 
3on,   34n,  45n,   son,   $2n, 
53n,  62n,  89n,  i2in, 


Woodbridge,  Manitoba,  77 


isssr 


50Tn-7,'29 


VB  18773 


355440 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


